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conventional loan

Learn what a conventional loan is and the different types available.
Discover the benefits of a conventional loan.
Find out the requirements to qualify for a conventional loan.

WHAT IS A CONVENTIONAL MORTGAGE LOAN?

A conventional loan is a type of home loan that is not secured by a government entity. It is offered by private lenders like banks, credit unions, and mortgage companies. However, two government-sponsored enterprises can guarantee conventional mortgages: the Fannie Mae or Federal National Mortgage Association, and the Freddie Mac or Federal Home Loan Mortgage Corporation.

A conventional mortgage usually has a fixed-rate interest. This means that the interest rate does not change throughout the life of the loan. Still, the interest tends to be higher than that of government-backed  mortgages, such as FHA loans.

Since it's not guaranteed by the federal government, banks and creditors typically impose stricter lending requirements. Potential borrowers need to complete an official mortgage application and supply required documents such as credit history and current credit score.

There are several types of conventional loans, including:
Fixed-Rate Loans
Adjustable-Rate Loans (ARMs)
Combination (Hybrid) Loans
Balloon Mortgages and Pledge Asset Loans
Jumbo / Construction Loans
Reversible Mortgage

WHAT ARE THE BENEFITS OF A CONVENTIONAL LOAN?

In general, a conventional loan is flexible and has few restrictions on the borrower. It's a great option if you qualify for it. Some of its biggest benefits include:
Lower Monthly Fees
Private mortgage insurance (PMI) is not required for the full length of the loan term.
Great down payment reward
No PMI required with a 20% down payment.
Multi-purpose
It can be used on a wide range of property types.
Higher Loan Limits
You can buy a more expensive home if you want.
Flexible Loan Terms
Adjustable- and fixed-rate options make it convenient for a wide range of buyers.

CONVENTIONAL LOAN QUALIFICATIONS

Conventional loans have stricter qualification guidelines than government-insured loans. The requirements may vary from one lender to the other, but usually include the following:

MINIMUM CREDIT SCORE OF 620

If your credit score is lower or dinged, consider an FHA loan, which can go as low as a 500.

A MAXIMUM DEBT-TO-INCOME (DTI) RATIO OF 45 TO 50%

Preferably 45%. However, depending on your credit score and reserves, we can go as high as 50%.

MINIMUM OF 3% DOWN PAYMENT

Loans for primary residences require at least 3% down payment for first-time buyers, and 5% for non-first-time buyers.
Request your pre-Approval

DOCUMENTATION REQUIRED TO QUALIFY

No property is ever 100% financed. Your lender will see to it that you can afford your monthly mortgage payments by checking your assets and liabilities. Your payments should not exceed 28% of your gross income.

The lender will also check if you can handle a down payment on the property, and if so, by how much. They will confirm if you can afford other up-front costs as well such as loan origination, underwriting fees, broker fees, and settlement or closing costs, all of which can significantly drive up the cost of a mortgage.

The following documentation is required when applying for a conventional loan:

1. Proof of Income

These documents will include but may not be limited to:

  • A month of pay stubs that demonstrate your income; also, a year-to-date income.
  • Two years of federal tax returns.
  • A statement that covers 2 or 3 months of all asset accounts, taking into account your checking, savings, and any investment accounts.
  • Two years of W-2 statements.

Borrowers will also need evidence of any additional income, such as alimony or bonuses.

2. Assets

You will need to present bank statements and investment account statements when applying for the loan. These documents are demanded as proof that you have funds for the down payment and closing costs, as well as cash reserves. If you are going to receive money from a friend or relative to help you with the down payment, you will need to present gift letters as certification that the money received is not a loan and doesn't require repayment. These letters often need to be notarized.

3. Employment Verification

Lenders today will make sure that they are granting loans only to borrowers with a stable work history. Not only will they ask for your pay stubs but they may also call your employer. They do this to verify if you are still employed and to confirm if you've declared the right salary. If your job is not the same as it was a few months ago, the lender may contact your previous employer for more verification. Self-employed borrowers have to provide additional paperwork about their business and income.

4. Other Documentation

Your lender will need a copy of your driver's license or state ID card. They may also ask for your Social Security number and your signature, allowing them to pull your credit report.

WHO MAY NOT QUALIFY FOR A CONVENTIONAL LOAN?

Generally speaking, those who are just starting a new career, those with a little more debt than average, and those with a modest credit rating, will often have trouble qualifying for a conventional loan. More specifically, this mortgage would be tough for those who have:
Suffered bankruptcy or foreclosure within the past seven years.
Credit scores below 650.
DTIs above 43%.
Down payment of less than 20% or even 10% of the home purchase price.
If ever you are not accepted for a conventional mortgage loan, don't think it is the end. Ask for the bank's reasons in writing and then try applying for other programs.

For example, if you don't have credit history and you're a first-time home buyer, you may qualify for an FHA loan. FHA loan is specifically tailored for new home buyers. It also offers lower down payment and has different credit and qualification requirements.

WOULD YOU LIKE TO QUALIFY FOR A CONVENTIONAL LOAN?

Are you getting frustrated because you don't know where to start?

JUST PROVIDE US WITH THE PROPER DOCUMENTATION

And OUR MORTGAGE BROKERS WILL DO THE HARD WORK FOR YOU

Request your pre-Approval

WE WORK WITH THE MOST POPULAR MORTGAGE PACKAGES

Selecting the right mortgage loan is very important. As mortgage brokers we make sure you get the best deal available for your home loan.

Conventional Loan

No PMI required with a 20% down payment.
Can be used for a wide range of property types.
Higher loan limits than some government-backed programs.
Flexible loan terms with adjustable-rate and fixed-rate options.
Learn more

VA Loan

100% financing available with full VA entitlement.
No private mortgage insurance required (PMI).
No prepayment penalty.
Guaranteed by the government.
Lenders have limitations.
Loans are assumable.
Learn more

FHA Loan

Low minimum credit score of 500.
Government-insured Loan program.
Flexible qualification for first-time homebuyers.
3.5% down payment with a credit score of 580+.
Closing costs could be paid by the seller, home builder, or lender.
Learn more

USDA Loan

0% down payment or lower down payment than other loan products.
Low private mortgage insurance (PMI).
Easier qualifying requirements for those with lower credit scores.
Can finance 100% of the home's purchase price.
Learn more
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