What is a conventional mortgage?

A conventional mortgage pertains to a loan not insured by the federal government. It may either have a fixed or adjustable rate. A fixed-rate mortgage has an interest rate set for the entire duration of the mortgage, which is usually 10, 15, 20 or 30 years.

On the other hand, an adjustable-rate mortgage usually has a term of 30 years with a low preliminary interest rate for a certain period but will be followed by regular adjustments.

Borrower’s requirements for this loan

A conventional loan is usually offered by private entities and is in conformity with the Freddie Mac and Fannie Mae loan limits. When applying for this type of home loan, one must be financially stable as this needs larger down payments compared to state-insured mortgages.

Also, this type of loan requires borrowers who are less likely to default. Since a conventional mortgage isn’t insured by the government, it’s a higher risk for lenders. A good credit score of 620 is usually the minimum credit score needed by the lenders to approve an application. However, a much more preferable score of 740 can help a borrower get a good rate.

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As mentioned, a conventional loan requires a higher down payment compared to other types of loans. Most lenders require up to 20% of the total amount as down payment. Aside from that, the borrower is also responsible for other fees such as the mortgage insurance, appraisal fees, and origination fees.

Conventional loan categories

There are two categories of conventional mortgages namely conforming and non-conforming loans. Conforming loans are the ones set to follow the Fannie Mae and Freddie Mac guidelines.

On the other hand, non-conforming loans (also called Jumbo Loans) are set higher than the conforming loan limits. They also include loans offered to borrowers with poor credit, recent bankruptcy, high debt, or have homes with high loan-to-value ratios. These types of loans usually carry other fees or insurance requirements because of their high uncertainty.


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