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 20% down payment. These loans are subject to maximum loan limits. Loans that exceed the maximum limit are known as Jumbo loans.

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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 45% of your income.

Freedom Mortgage also offers alternatives to conventional mortgage loans such as FHA, USDA and VA if you feel you wouldn’t qualify for a conventional mortgage loan.

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