A Conventional loan is also a “conforming” loan, meaning that they meet the requirements to be bought by Fannie Mae and Freddie Mac, the main players in the secondary mortgage market. Fannie Mae and Freddie Mac essentially create the standards that a loan must meet (credit score, loan-to-value ratio, debt-to-income ratios, reserve requirement, etc.). If a lender turns you down, you can probably be sure it is because you do not conform to Fannie Mae and Freddie Mac’s requirements.
Non-conforming loans is a different topic for another day, but an example would be a jumbo loan – a loan greater than $417,000 (currently) that Fannie Mae does not buy. Or some lenders and banks may be what is called a “portfolio lender“, where they do not sell the loans via Fannie Mae and Freddie Mac. Lenders have a lot more flexibility with non-conforming loans, but few lenders do them and the costs are often much steeper.
- One of the most versatile and common of the loan types
- Competitive rates comparable to the other loan types
- Fewer restrictions on the type or condition of the home you are purchasing
- Usually requires at least a 5% downpayment for owner occupied (versus 3.5% for FHA or 0% for VA or USDA)
- Downpayments of less than 20% will usually require getting mortgage insurance as well (unlike VA)
- Other closing costs depending on the lender and negotiations with the seller.
The qualifications lenders are looking for is constantly changing and you need to talk to a lender to find out what is current. Generally you will want to work toward having the following at a minimum:
- 2 years stable income and employment history
- Credit score in the 600s or higher
- Enough cash on hand for a 5% downpayment and to pay at least the first 3 months of mortgage payments
This loan type might be right for you if:
- You don’t qualify for a VA or USDA loan, or have already used up those loan types (remember you can use the VA loan twice!).
- Your debt-to-income ratio is low enough that you do not need an FHA loan with it’s onerous MIP.
- You’re purchasing an income/non-owner occupied property.
The opportunities, qualifications and rates are always changing, so for the best picture of what is available for you and your circumstances, I recommend contacting the local lenders below! After contacting an agent, contacting a lender is the next step in getting a picture of your finances if you are considering purchasing a home, and is free. You also aren’t committed to a lender just because you got a preapproval, so I highly recommend talking to one today.View Recommended Local Lenders