Conventional Loans

All About Conventional Loans

What is a conventional loan?

A conventional loan is a type of mortgage that’s made for residential property. These loans are issued by private lenders (banks, credit unions, and other lenders). Lenders that make conventional loans also service the loans, meaning that they collect mortgage payments and pursue foreclosure if a borrower defaults.

Conventional Loan Requirements

Conventional mortgages are not government-backed, like a USDA or FHA loan. However, in order for a home loan to qualify as a conventional mortgage, it must comply with lending rules set by Fannie Mae and Freddie Mac. These rules require:

  • â—‰ A minimum credit score of about 620 to qualify, depending on the loan amount, debt-to-income ratio, and other factors
  • â—‰ A debt-to-income ratio under 43%—may be lower for borrowers with lower credit scores
  • â—‰ No major credit report issues, like bankruptcy or foreclosure
  • â—‰ A down payment of 3% or more (20% if you don’t want to buy mortgage insurance)
  • â—‰ A total loan amount of $510,400 or less (in most areas — $765,600 in higher-cost areas)

Conventional Loan Limits

The loan limit for conventional mortgages varies by location. For 2020, the limit in most areas is $510,400. However, for higher-cost areas, the limit can be as high as $765,600.

Qualification Standards

Standard qualification requirements include:

  • â—‰ A debt-to-income ratio under 43% (potentially lower if you don’t have great credit)
  • â—‰ A minimum credit score of about 640
  • â—‰ A down payment of at least 3% (20% if you want to avoid paying for mortgage insurance)

Because many conventional loans are sold to government entities, lenders often assume little risk on individual loans, which means that borrowers can often get the lowest interest rates available—especially if they have good or excellent credit and household incomes over $60,000 to $75,000 per year.

A conventional loan is ideal for:

  • â—‰ Those with stable full-time jobs that provide regular, consistent paystubs
  • â—‰ Self-employed people with three or more years of consistent, reliable income
  • â—‰ Married couples with moderate to high household income and little debt

Need a conventional loan? Fill out the form and let's get you started.

By checking the box, you hereby agree to the terms and conditions set by Palm Realty, including the handling of your submitted data.
Please help us verify that you are human by answering the question

Share :