What is a Conventional Mortgage Loan?

A Conventional MortgageLoan are underwritten to the guidelines set by Fannie Mae and Freddie Mac but they are not insured by the federal government.    A conventional mortgage can have a fixed, or adjustable rate depending on the type of conventional loan you select.  The most common conventional loan is a 30 year fixed rate conventional loan.  A fixed rate loan will have an interest rate that is fixed for the lifetime or “term” of the loan.   The interest rate is fixed and will not adjust over the the life of the loan.   People can also have different terms like 10, 15 and 20 year terms as well, some lenders will even let you do a odd number of years as well like 14 year.

Why choose a conventional loan?

Conventional lenders are working hard to compete with FHA loan with the new 3% down products that both Fannie Mae and Freddie Mac now offer.   These products are excellent for creditworthy borrowers that have the ability to repay the loan, but may have the the full 20% down payment.  With this product a borrower can qualify with as little little as 3% down, and during a purchase transaction if in the offer the sellers pay for the closing costs than an individual can buy a home with a normal loan with only 3% down.  So for a 300,000 home that would be a minimum investment of $9,000.   Anytime a borrower is looking  to put over 20% down or wants to avoid mortgage insurance all together the conventional loans usually make the most sense…     Conventional loans are an excellent choice for people looking to purchase  or refinance a home… Conventional loans are preferred often for well qualified borrowers especially when putting a down payment of 20% or more.    Now with FHA loans all loans have the mandatory mortgage insurance on the loan for the lifetime of the loan no matter what the equity position..

 

Qualifying for a conventional loan

Conventional mortgage loans are offered by most lenders that also offer FHA, VA, USDA and other home loan types.  Manifest Mortgage works with a number of different institutional investors, and correspondent banks to over a large selection of lenders and products from conventional loans.  Mortgage Lenders view conventional loans as a bit riskier loan because they’re not guaranteed by the government if a buyer defaults, so these mortgages can have tougher qualification requirements and slightly higher interest rates.  Typically with conventional loans borrowers are more restricted by debt to income levels, while FHA, and VA loans can have much higher debt to income tolerance levels the Conventional Loans are typically lower, meaning a borrower has a higher debt load may have increased purchase power with other loan types.

 

Credit Score Requirements

Credit score requirements can vary from lender to lender and from product to product.  Occupancy and the product will dedicate what minimum FICO scores are required, but a generality most Conventional lender are looking for a minimum FICO score of around 620.  Non-traditional credit may also be used if a borrower hasn’t established credit yet, ask your dedicated loan officer about what it takes if you have not had a chance to establish credit yet as well as there are guidelines that allow lenders to still lend, even if you don’t have credit established yet..

Great First Time Buyer Programs With Conventional Loans Would Include:

Freddie Mac Home Possible Mortgage

Fannie Mae Home Ready

Ask one of our senior loan officers to review your individual scenario, credit, asset, and ability to repay to determine if a conventional mortgage would be the best bet for your loan or let us guide you on the best product to suit your needs.