Mortgage Minute: Guide to Conventional Loans

Talking about mortgages isn’t necessarily the most “entertaining” part of home searching - because let’s face it, there are not pretty pictures and interesting videos! But…it’s essential to know your options when buying a home. So let’s talk mortgages!

The first key to success - knowing what the heck is a conventional loan!

By definition, a conventional loan is a type of mortgage that is not backed by the government, such as the Federal Housing Administration (FHA), the U.S. Department of Agriculture, or the Veterans Affairs. Instead, conventional loans are issued by private mortgage lenders and come with a variety of loan terms and rate options. They often have a low down payment requirement and give home buyer the option to avoid mortgage insurance.

Conventional loans can have fixed or variable interest rates and fall into either conforming or nonconforming loan types. Conforming loans are intended to be sold to government-sponsored entities like Fannie Mae and Freddie Mac, which means they have specific eligibility guidelines regarding credit scores, debt-to-income ratios, and maximum loan amounts.

On the other hand, nonconforming conventional loans, like jumbo loans, do not adhere to these guidelines and provide greater leeway in qualifying requirements.

Overall, conforming loans generally offer lower interest rates and fairly rigid qualifying criteria, while nonconforming loans may have higher rates and more flexible credit requirements.

It's important for home buyers to shop around for conventional loans as different lenders have varying requirements and rates.

One key factor in qualifying for a conventional loan is your credit score.

So, clear as mud, right? Don’t worry, if you have any specific questions about conventional loans or need assistance with related real estate materials, feel free to ask! We also have access to a variety of mortgage companies to help you navigate your financing path.

Source: Wall Street Journal (05/14/24) Yale, Aly J.