If you’re looking to finance a home, it’s essential to understand which loan type best meets your individual needs. For most homebuyers, the conventional loan is by far the most popular mortgage option. Unlike other mortgage types, such as FHA, USDA, or VA loans, conventional loans are not insured or guaranteed by a government program. Rather, they are available through private lenders such as mortgage companies, banks, or credit unions.
Features of Conventional Loans
Often referred to as “conforming” loans, conventional loans meet the requirements of the enterprises Fannie Mae and Freddie Mac, which help to standardize mortgage lending in the United States.
Compared to other mortgage types, conventional loans tend to have stricter requirements. However, they offer several attractive features for qualified prospective homebuyers. Here are just a few:
- Your interest rate is often based on your credit score with a conventional loan. Therefore, those with a higher credit score will likely see a lower interest rate.
- Conventional loans have a faster underwriting process as they typically require less paperwork than their government-issued counterparts.
- Usually, conventional loans come with a fixed rate of interest, meaning the interest rate will not fluctuate during the life of the loan.
Qualifying for a Conventional Loan
Requirements for a conventional loan may vary by lender. However, most borrowers seeking a conventional loan must meet basic guidelines set by Fannie Mae and Freddie Mac, including:
- A minimum credit score of 620
- A debt-to-income ratio (DTI) lower than 43%
- A down payment of at least 3%, or 20% with no private mortgage insurance (PMI). However, this may vary based on your personal situation and the type of loan or property you are getting.
Are you wondering if a conventional loan is right for you? Contact Coastal Custom Mortgage today to find the best financing option for your unique needs and financial goals!