Conventional Loans are mortgage loans that are not insured by the government (like FHA, VA and USDA Loans are), but instead meet the lending guidelines set by Fannie Mae or Freddie Mac, which are "government sponsored", private entities. In many cases, conventional loans have better rates, terms and/or lower fees than other types of mortgages. However, conventional loans normally require a borrower to have good-to-excellent credit and credit scores, reasonable amounts of monthly debt obligations, a down payment of 3-20% and reliable monthly income. Conventional loans are ideal for borrowers with excellent credit and at least a 5% down payment. There are also several favorable options available to first-time homebuyers and/or low-to-moderate income buyers with down payments as low as 3%. In many cases, part or all of the down payment is allowed to come from a gift from an eligible donor.
Most Common Types of Conventional LoansFixed Rate Mortgages: Your rate and payment never change.
Adjustable Rate Mortgages: After the "initial fixed rate period", your interest rate is subject to change once a year.
For Purchase transactions Conventional Loans require the home-buyer to put down at least 3% - 20% of the purchase price of the home. For a Refinance transaction, most lenders require at least 5% equity in the property, although 3% is possible under certain circumstances. If you don't have enough equity to qualify for a conventional refinance - even if you owe more than your home is worth - you might be eligible for a HARP 2.0 Loan.
Most conventional loan programs allow you to purchase single-family homes, eligilbe condominiums, planned unit developments (PUD's), and 2-4 family residences (duplexes, triplexes and fourplexes). A conventional loan can be used to finance a primary residence, second home or investment property.
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