Over 82 percent of the United States mortgage market consists of conventional loans. A conventional loan is what typically comes to mind when mentioning a mortgage. So, what exactly is a conventional loan and who backs it?
Applicants utilize conventional mortgage loans to finance the purchase of a primary residence, secondary residence, or rental property. These mortgage loans are very common and have standard requirements.
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Requirements and Attributes for a Conventional Loan
It is important to remember that the requirements can vary by lender and circumstance. However, below are the most typical baseline attributes of a conventional home loan.
Minimum credit score of 620 (680 or higher is ideal)
Potential loan limits by area
3% minimum down-payment (this could go as high to 20% depending on lender)
Various term lengths from 10 to 30 years
Follows a fixed interest rate or adjustable-rate mortgage terms and conditions
Generally, conventional loan lenders want to assure the applicant can afford and properly finance the property.
Who Backs Conventional Mortgage Loans?
We discussed the definition, requirements, and qualities of this type of loan; therefore, it is now important to understand who backs it. Unlike FHA, VA, and USDA loans, all backed by a government-entity, conventional loans are not. In fact, private lenders grant conventional loans. These lenders must adhere to the standards set by Fannie Mae and Freddie Mac.
Alternatives to Conventional Loans
Alternatively, if you do not meet the requirements for a conventional loan or are interested in other options, then there are some government-backed loans to consider; these loans are Federal Housing Administration loans, Department of Veteran Affairs loans, and United States Department of Agriculture loans. Each type of loan has different requirements and benefits. Learn more about these government-backed loan alternatives. It is important to consider all loan options to determine what works best for you!
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