What is a Conventional Home Loan?
Unlike USDA loans, FHA loans, or VA loans, a conventional loan is not backed by a government agency, so a private mortgage lender is assuming the risk.
Buyers can use a conventional mortgage for a primary residence, vacation home, or even income property. This can offer more flexibility, depending on the lender. A Conventional loan is the most common type of loan.
Requirements for Conventional Loans
While the lender can set the requirements, to an extent, there are some fairly universal requirements that determine eligibility for this type of mortgage.
Down Payment
While most lenders allow a down payment as low as 5 percent, anything below 20 percent will require private mortgage insurance (PMI). PMI is an insurance that protects the lender if you default on your loan, and adds an additional cost to your monthly payment.
Credit Scores
Conventional home loans often require a higher credit score than government-backed mortgages. Typically, a credit score of at least 620 is necessary to be approved.
Property Type
Any type of property, including single family homes, duplexes, condos, and vacation homes can be financed through a conventional mortgage. It can also be used as a primary or secondary residence, or even as income property.
Debt-to-Income Ratio
Like an FHA loan, lenders will look at your debt-to-gross income ratio with a mortgage included. This means that your debt plus mortgage should not go over 43 percent of your income.
Advantages of a Conventional Loan
If you’re considering buying a home or secondary property, speak to a loan officer who is licensed in your state to see if a conventional home loan is your best option. He or she will look at your unique finances and background and help you take the steps needed to find the path to Yes!
