In the world of real estate, conventional loans are frequently the cornerstone of home financing. However, what are conventional loans precisely, and why are they so well liked? Let’s examine a few quick facts to help clarify this option so that you can be well informed when choosing the right loan for your needs.
- What are conventional loans? Conventional loans are mortgages that aren’t insurable or guaranteed by any government body, such as the Department of Veterans Affairs (VA) or the Federal Housing Administration (FHA). Instead, they are supported by commercial lenders like banks and credit unions.
- What down payment is required for conventional loans? One characteristic that sets conventional loans apart is the amount of the down payment. Contrary to popular belief, conventional loans don’t usually require a 20% down payment. A borrower’s financial profile and the lender will determine the required down payment amount, which can range from 3% to 5%.
- What credit score do you need to get a conventional loan? Conventional loans have greater credit score criteria than loans backed by the government. For instance, conventional loans typically have a minimum credit score requirement of 620 to 640, while FHA loans may allow lower credit scores.
- What type of property can I buy when getting a conventional loan? The financing of a variety of properties, such as single-family homes, townhouses, condominiums, and multi-unit properties (up to four units), is possible using conventional loans. Stricter qualifying standards might apply to some property types, though, like second homes and investment houses.
- What are the eligibility conditions for conventional loans? Although conventional loans are less restricted than government-backed loans, borrowers must still fulfill several eligibility conditions, such as those pertaining to debt-to-income ratios, employment histories, and income verification.
