Conventional Loan

If you’re considering buying a house, you'll likely need a mortgage loan to finance the purchase. With many different types of loans to choose from, picking the right one for your needs can be tough. For many borrowers, a conventional loan is the best choice. By using Forward Loans Mortgage Marketplace, you can assure yourself the best rates and access to the ideal loan for your situation.

What Is A Conventional Mortgage Loan?

A conventional mortgage loan is not directly insured by a government program. Most conventional loans are also “conforming” loans, meaning they meet the requirements for Fannie Mae or Freddie Mac. These government-sponsored enterprises purchase mortgages from lenders and sell them to investors, freeing up lenders’ funds to get more qualified buyers into homes. Conventional mortgages are available with various term options, with most people choosing between 15-year and 30-year terms.

Because there are different guidelines under the umbrella of “conventional loans,” there’s no single set of requirements for borrowers. However, in general, conventional loans have stricter credit requirements than government-backed loans like Federal Housing Administration (FHA) loans. Using Forward Loans Mortgage Marketplace can help you navigate these requirements and find the best loan for you.

Conventional Loan Requirements

As with any mortgage loan, you’ll need to meet certain qualifications to buy a home with a conventional loan. Here’s what you need to know:

Down payment

First-time home buyers can get a conventional mortgage with a down payment as low as 3%. However, this requirement can vary:

01

If you’re not a first-time home buyer or making more than 80% of the median income in your area, the down payment requirement is 5%.

02

If the house you’re buying has more than one unit, you may need to put down 15%.

03

If you’re buying a second home, you’ll need to put at least 10% down.

04

If you’re getting an adjustable-rate mortgage, the minimum down payment requirement is 5%.

A mortgage calculator can help you figure out how your down payment amount will affect your future monthly payments. By using Forward Loans Mortgage Marketplace, you can easily access the tools you need to make these calculations.

Private Mortgage Insurance

If you put down less than 20% on a conventional loan, you’ll be required to pay for private mortgage insurance (PMI). PMI protects mortgage investors in case of a loan default. The cost for PMI varies based on your loan type, credit score, and the size of your down payment.

PMI is usually paid as part of your monthly mortgage payment, but there are other ways to cover the cost. Some buyers pay it as an upfront fee included in their closing costs, while others opt for a slightly higher interest rate. By using Forward Loans Mortgage Marketplace, you can explore these options and determine which one is the most cost-effective for you. Other Requirements

Other Requirements

01

Credit Score

In most cases, you’ll need a credit score of at least 620 to qualify for a conventional loan. Your lender will check your credit history to determine if you qualify. If not, you might not get approved for the loan. Forward Loans Mortgage Marketplace can help you understand your credit score and provide tips to improve it if necessary.

02

Debt-To-Income Ratio

Your debt-to-income ratio (DTI) represents how much of your monthly income goes to pay off debts. Most conventional loans allow up to 50% DTI, though a lower DTI increases your likelihood of approval. Forward Loans Mortgage Marketplace can assist you in calculating your DTI and finding ways to improve it.

03

Loan Size

For a conforming conventional loan, your loan must fall within the loan limits set by Fannie Mae and Freddie Mac. For 2023, the conforming loan limit for a single-family home is $726,200, with higher limits in high-cost areas. Visit the Federal Housing Finance Agency website to see loan limits for your area. Forward Loans Mortgage Marketplace can provide up-to-date information on loan limits in your area.

How Is A Conventional Mortgage Different From Other Loan Types?

Let’s compare conventional loans to other popular loan options.

Conventional Loans Vs. VA Loans

While conventional loans are available to anyone who can meet the requirements, VA loans are only available to veterans, active-duty service members, and their surviving spouses. VA loans offer benefits such as no down payment and no mortgage insurance. However, you cannot use a VA loan to buy a second home, and there is a funding fee involved. Forward Loans Mortgage Marketplace can help you determine if a VA loan or a conventional loan is better for your situation.

Conventional Loans Vs. FHA Loans

Conventional loans have stricter credit requirements than FHA loans. FHA loans allow approval with a credit score as low as 500 with a 10% down payment, while conventional loans require a minimum credit score of 620. However, FHA loans require mortgage insurance premiums for the life of the loan if the down payment is less than 10%. Forward Loans Mortgage Marketplace can help you compare the long-term costs of conventional and FHA loans.

Conventional Loans Vs. USDA Loans

USDA loans can only be used in qualifying rural areas and have income limits. They don’t require PMI but do require a guarantee fee. Forward Loans Mortgage Marketplace can provide information on whether a USDA loan is an option for you and help you compare it to conventional loans.

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Conventional Loan FAQs

  • Is a Pest Inspection Required for a Conventional Loan?

    In most cases, your lender won’t require a pest inspection unless there is evidence of an infestation. Forward Loans Mortgage Marketplace can connect you with lenders who can clarify these requirements.

  • Can I Get Down Payment Assistance with a Conventional Loan?

    Yes, you may qualify for down payment assistance. Government agencies and community programs offer assistance to buyers struggling with financial situations. Forward Loans Mortgage Marketplace can help you explore these options.

  • How Many Conventional Loans Can I Have at One Time?

    You can have up to ten conventional mortgages in your name. Forward Loans Mortgage Marketplace can guide you through financing methods to purchase multiple properties if you’re interested in real estate investing.

Mortgage Marketplace Tip

Conventional loans generally offer lower costs than other loan types. If you meet credit score requirements and want a low down payment, a conventional mortgage might be the best solution for you. To find out what types of financing you qualify for, start the mortgage approval process today with Forward Loans Mortgage Marketplace. Assure yourself the best rates and access to the ideal loan for your needs.

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