What Is A Conventional Loan
A conventional mortgage loan is a type of home loan that isn’t backed or guaranteed by a government agency like the FHA or VA. These loans are offered by private lenders and are the most common type of mortgage. Conventional loans can be conforming or non-conforming. Conforming loans meet certain guidelines set by the Federal Housing Finance Agency (FHFA) and are often purchased by Fannie Mae or Freddie Mac
Pros
Mortgage Insurance can be dropped once the loan is paid down to 78% of the original purchase price.
Conventional Loans do not have mandatory mortgage insurance for loans below 80% loan to value.
Most lenders offer flexible closing cost scenarios such as no underwriting or processing fees if rolled into the rate. There are more options on income qualification especially for self-employed borrowers. One year tax returns vs
two and assets can be used to create additional income. The appraisal requirements are more relaxed than other loan programs.
Cons
Credit scores impact the pricing on a conventional loan more that FHA or VA. Borrowers with low to average credit scores should compare the rate and payment with an FHA loan. The down payment on a conventional loan for non-first time homebuyers is limited to 5% down.