What is a Conventional Home Loan?

Conventional home loans are a type of mortgage that is not guaranteed or insured by a government agency such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). These loans are offered by private lenders such as banks, credit unions, and mortgage companies. Conventional loans can be either conforming or non-conforming, depending on whether they meet the guidelines set by Fannie Mae and Freddie Mac. Conforming loans have lower interest rates and are easier to qualify for because they meet the government-sponsored entities' guidelines, while non-conforming loans are riskier for lenders and may have higher interest rates.

To qualify for a conventional home loan, borrowers typically need to have a good credit score, a stable income, and a down payment of at least 3% of the home's purchase price. Borrowers with a down payment of less than 20% may be required to pay for private mortgage insurance (PMI), which protects the lender if the borrower defaults on the loan. Paying a higher down payment can help reduce monthly mortgage payments and may also allow the borrower to avoid paying for the PMI.

Conventional home loans come in different types, including fixed-rate mortgages and adjustable-rate mortgages (ARMs). Fixed-rate mortgages have a constant interest rate throughout the life of the loan, which can range from 10 to 30 years. ARMs have interest rates that can change after an initial fixed-rate period of 3, 5, or 7 years. ARMs may be a good option for borrowers who plan to sell or refinance their home before the interest rate adjusts.

Cash-out refinancing is another type of conventional home loan that allows homeowners to refinance their existing mortgage and take out a portion of their home's equity as cash. This option is suitable for homeowners who need money for home improvements, debt consolidation, or other expenses.

Overall, conventional home loans offer competitive interest rates, flexible terms, and a variety of options that can cater to a borrower's specific needs. It is always advisable to shop around and compare loan options from different lenders to find the best mortgage for your situation. Anyone of our highly knowledgeable loan officers can help guide you through the process and find the right loan for you.