What is a Conventional Loan?

A conventional loan is a type of mortgage loan that is not insured or guaranteed by the government. Conventional loans are typically offered by private lenders such as banks, credit unions, and mortgage companies. These loans can be used to purchase or refinance a home and are popular among borrowers who have good credit and can afford a larger down payment.

Conventional loans are available in two types: conforming and non-conforming loans. Conforming loans are loans that adhere to the guidelines set by Fannie Mae and Freddie Mac, the two government-sponsored entities that purchase mortgages from lenders. Non-conforming loans are loans that do not meet these guidelines and are usually reserved for borrowers with high credit scores and substantial down payments.

One of the biggest advantages of a conventional loan is the flexibility it offers borrowers. Unlike government-backed loans, conventional loans have no specific requirements for the type of property you can buy or the loan amount you can borrow. Additionally, conventional loans can be used for a variety of purposes, including primary residences, second homes, and investment properties.

To qualify for a conventional loan, borrowers typically need to have a good credit score, a stable income, and a low debt-to-income ratio. Generally, a credit score of at least 620 is required for conventional loans, although some lenders may require higher scores. Borrowers will also need to provide proof of income, such as pay stubs or tax returns, and may be required to show proof of assets and employment history.

In conclusion, a conventional loan is a type of mortgage loan that is not backed by the government and is offered by private lenders. These loans offer borrowers flexibility in terms of property type and loan amount and are popular among borrowers with good credit and a stable income. If you are considering a conventional loan, it is important to research and compare lenders to find the best loan terms and interest rates for your situation.