Conventional loans are specialized mortgage loans for the first time home buyers that is not backed by the Federal government. Even though, this loan facility comes in multiple shapes and sizes, but they do not provide similar benefits as offered in FHA, VA, and USDA loans. It is a matter of fact that even after this, the conventional loans are considered as the most common mortgage loan type in US due to its leniency and better loan coverage.

What is it?

A conventional mortgage loan is a loan facility offered to the first time homebuyers but are not backed by the government entity. Being conventional in nature, they are not a component of any government program but generally cost less than an FHA loans. These loans are noninsured or guaranteed under the Federal government but the biggest benefit of this loan facility is that its terms are quite flexible and easy to qualify. So, lets uncover a more about it.

How to Qualify?

There are multiple things that needs to be kept in mind in order to qualify for a conventional home loan. Right from the required terms of credit scores to debt-income ratio, there are few points to consider, in order to qualify for the same.

Here are a few crucial qualifying factors for conventional loans-

  • To qualify for a conventional loan, the borrower should have a minimum credit score of 620. However, this totally depends on the loan amount, the borrower’s debt-to-income ratio, and many other financial factors.
  • A borrower with debt-to-income ratio below 43% will be considered ineligible for the loan facility.
  • Borrowers should not have any major credit report issues such as foreclosure, bankruptcy, etc.
  • The borrowers should be ready for a down payment ofminimum3% or more till 20%, for a conventional loan in case you wish to exempt buying a mortgage insurance.
  • The total loan amount eligible for conventional loans are $510,400 or less for common regions while $765,600 for higher-cost regions.
  • The loan coverage limit under the conventional mortgages will vary as per location.

Documentation Needed:

  1. Borrower’s driver’s license or any other photo ID
  2. Records of pay stubs from last month (applicable for a W2 employee)
  3. Tax returns for the last two years
  4. Documentation, assuring borrower will pay the down payment
  5. Borrower’s financial statement depicting his/her assets and liabilities
  6. Borrower’s credit report
  7. Intentional Purchase property’s appraisal

Advantages of Conventional Loans

Even though, the conventional loans are not government backed but, still they have a band of advantages to enjoy. Given below is a list of associated advantages with the conventional loans-

  1. Conventional loans are more transparent in comparison to any other loan facility. With clear cut rules and norms, it offers a better peace of mind to the borrowers.
  2. Convectional loans are more stable in this unstable world of loan and mortgage settlements as they do not turn dynamic at different intervals.
  3. Conventional loans offer good credit along with a lower interest rates. This makes it popular amongst even the low to middle income group people. With lower interest rates, such loans always turn out to be lucrative.
  4. Such loan facility can be attained even at a very low down payment of just 3% which makes it everyone’s cup of tea.
  5. Under this loan facility, a borrower can save their money with just a shorter term loan.
  6. Conventional loans can be a very good loan option for buying different types of homes under a single loan umbrella.

Types of Conventional Loans

Conventional loans are of many different types. Let us discuss a few types of conventional loans, as mentioned below-

  • Conforming conventional loans: These are mortgages wherein confirming lenders tend to underwrite and provide to fund for the loan and further sell it down to investors like- Fannie Mae and Freddie Mac.
  • Nonconforming conventional loans: These loans are not in adherence to GSE (Government Sponsored Enterprises) guidelines and norms and are thus, not eligible to be resold to Fannie Mae and Freddie Mac
  • Fixed-rate conventional loans: Under these conventional loans, the interest rate remains the same, throughout the loan’s lifecycle. Under this the final settlement amount under the loan does not variate.
  • Adjustable-rate conventional loans: This type of conventional loan facilitates a dynamic rate of interest under the loan facility. These rates will depend on the market conditions and are adjusted accordingly.
  • Low-down-payment conventional loans: This loan facility comes as a boon to all those who are not capable of paying high amounts under the loan facility. Under this, a borrower can get the loan at a down payment as low as 3%.
  • Conventional renovation loans: This conventional loan facility is specifically designed and defined for renovations required in a home. It covers all the expense borne under the renovation head.

This is all about the conventional loans. If you are the one looking to take advantage of this loan facility, you can surely benefit from the above information.