What is a Conventional Loan?
A conventional loan is a mortgage not insured or guaranteed by a government agency such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). As compared to FHA loans, a conventional mortgage typically requires a higher credit score. These loans will also require Private Mortgage Insurance (PMI) for loans with less than a 20% down payment. These loans are subject to maximum loan limits. Loans that exceed the maximum limit are known as Jumbo loans.
Conventional Loan Benefits
Here are some of the benefits of a conventional loan, refinance or cash out refinance:
- Conventional loans may be used to purchase investment properties or a second home
- No private mortgage insurance required if you put 20% down
- A variety of flexible loan term options to fit your needs whether it’s a 15-year or a 30-year
- No upfront mortgage insurance premium
- The ability to refinance into a conventional loan from any other loan type that may allow you to take advantage of lower interest rates
Conventional Loan Eligibility
To be eligible for a conventional purchase, refinance or cash out loan you should have:
- Good credit, typically 620 or greater FICO.
- Provide a down payment, ideally 20% to avoid Private Mortgage Insurance (PMI).
- Show proof of income and two years of tax returns.
- Cash reserves on hand to cover closing and additional costs.
- Ensure total debt does not exceed 43% of your income, in most cases.
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