A conventional home mortgage loan is one not backed by a government agency and provided through a private lender. The Federal Housing Finance Agency (FHFA), however, does set the
guidelines for credit score and down payment requirements.
Conventional Loan Eligibility
There many variables to take into consideration when it comes to the specifics or a conventional loan – income, credit score, employment, location – but all conventional loans are beholden to regulations of Fannie Mae and Freddie Mac. Some of these include:
– Credit score – must be 620 or higher
– Income – must have a debt-to-income ratio of less than 43%
– Low down payment requirements.
Conventional Loan Benefits
Unlike government-back loans like a VA, USDA, or FHA loan, a conventional loan does not require anything specific from the borrower other than a high likelihood they’ll be able to make their payments. Conventional loans typically offer flexible term options. The longer your term is, the lower you monthly payment will be, but you’ll ultimately end up paying more over the life of the loan due to interest. Conventional loans also do not require upfront mortgage insurance.
Loan approval and terms are dependent upon borrower’s credit, documented ability to repay, acceptability of collateral property, and underwriting