Conventional Loans

At Financial Concepts Mortgage, our mortgage lending team works with everyone from first-time homebuyers to current homeowners looking to make a move. We want to ensure all homebuyers understand their options to make the best choice that works for their financial situation. Read on to learn more about conventional home loans and contact us to get the lending you need to purchase your dream home!

What Is a Conventional Home Mortgage Loan?

A mortgage is a type of loan that is specifically tied to real property. A conventional mortgage loan a broad term used to describe any loan that is not backed by the government but is instead backed by private mortgage lenders such as Financial Concepts Mortgage.

In comparison, Federal Housing Authority (FHA) loans and Veterans Administration (VA) loans are both backed by the government. FHA loans were created by Congress in the 1930s to make it easier for Americans to get into homeownership, whereas VA loans are designed for veterans, military members, and their spouses.  

What Are the Benefits of a Conventional Home Loan?

Whether you are a first-time homebuyer or someone who owns multiple properties, there are many benefits of a conventional loan vs. a government-backed FHA loan. Any time an individual or couple seeks a loan, a financial background check is performed to determine eligibility, such as income, credit score, and outstanding debt. Advantages of qualifying for a conventional mortgage include:

• Lower Down Payment Requirement – For first-time homebuyers, a conventional loan allows for down payments as low as 3%. The minimum for existing homeowners is 5%.
• No Private Mortgage Insurance (PMI) Required – If buyers can put down at least a 20% down payment, no PMI is required.
• PMI Cancellation – If you put down less than 20% and carry a PMI, you may cancel the PMI once you have 20% equity in your home.
• Mortgage Options – Conventional loans offer both fixed-rate and adjustable mortgage terms.
• Term Flexibility – Homebuyers can choose mortgage terms from 15, 20, or 30 years.
• Lower Rates – Conventional loans typically carry lower rates than FHA loans.

Who Is Eligible for a Conventional Mortgage?

Applying for a conventional loan requires applicants to provide financial information that lenders review to determine eligibility. Conventional loans have a limit on how much can be borrowed for a home. In most areas, the limit in 2021 is $548,250. Some areas where the median home price is higher will have higher limits. Homebuyers seeking to purchase luxury homes typically apply for what is called a jumbo loan, which have different parameters from a conventional loan. The majority of those seeking to purchase a standard, single-family home will have to meet the following criteria to be approved for a conventional loan:

• A credit score of at least 620 or higher
• A down payment between 3% and 20%
• A debt-to-income ratio of less than 50%
• No major past credit issues, such as bankruptcy

Conforming vs. Non-Conforming Conventional Loans

Conventional loans can be both conforming and non-conforming. Conforming loans follow guidelines for loan limits as set by Fannie Mae and Freddie Mac. This limit varies from year-to-year and depends on your location. Conventional loans, FHA loans, and many other major loan programs can be considered conforming loans. 

Non-conforming loans are conventional loans with higher loan values than Fannie Mae and Freddie Mac allow. These loans are called jumbo loans and are typically used to purchase high-value, luxury properties.