Conventional Loan

What is a Conventional Loan?

Conventional loans are mortgages that are not insured or guaranteed by the federal government. Unlike FHA or VA loans that are government insured, conventional mortgages are not which puts the lender at risk in case the borrower defaults on their loan. Because of this, lenders usually have stricter requirements for these loans. This makes conventional loans ideal for borrowers with good to excellent credit.

Conventional loan limits vary from state to state (for example, in the County of Los Angeles the limit is $679,650). They often include a fixed rate or adjustable rate option for borrowers. A fixed-rate conventional loan comes with an interest rate that will not change over the life of your loan, usually between 10 and 40 years.

In contrast, an adjustable-rate mortgage (ARM) is a mortgage loan with the interest rate on the note periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit markets. The loan may be offered at the lender’s standard variable rate/base rate.  Mortgage Insurance (MI) is not typically required.  Mortgage insurance is an insurance policy which compensates lenders or investors for losses due to the default of a mortgage loan.

Requirements

Borrowers need to have good credit in order to take advantage of low interest rates. Moreover, lenders typically require borrowers make a down payment on their home, usually around 20 percent of the loan amount. There are conventional loan options for those who cannot pay 20 percent down, the interest rate may not be the same and could require borrowers to pay for mortgage insurance- insurance that protects the lender in case a borrower defaults on their loan.

Benefits

Conventional loans are a great option for those borrowers who have a good credit history and value a stable mortgage with no surprises.  They often require less paperwork than their FHA and VA loan counterparts and offer low interest rates for those who qualify. 

If you are interested in finding out if a conventional mortgage is right for you, please contact me or fill out our pre-approval form so I can help you evaluate your loan options

10% Down

20% Down

 

5% Down 

3% Down