Learn About a Conventional Loan
A conventional loan is a type of mortgage that is not insured or guaranteed by the federal government, unlike government-backed loans such as FHA, VA, and USDA loans. This means that the lender assumes the risk of the loan and borrowers are required to meet certain eligibility criteria and financial requirements. If you're thinking of buying a home, check out the information below to see if a conventional loan may be a good option for you. California Home Solution helps buyers and homeowners across Los Angeles and the San Fernando Valley compare conventional loan options, including both conforming and jumbo, to find the right fit.
What is a Conventional Loan?
One of the main benefits of a conventional loan is flexibility in how much you can borrow. Loans up to the conforming limit follow standard guidelines, and amounts above it are handled as jumbo loans, so conventional financing can cover everything from modest purchases to higher-priced Los Angeles homes. Conventional loans also tend to offer lower interest rates than government-backed loans for well-qualified borrowers, which can save you thousands over the life of the loan. And mortgage insurance is not required if you put down at least 20 percent of the purchase price, which lowers your monthly payment.
Who is Eligible for a Conventional Loan?
To be eligible for a conventional loan, you will need to meet certain criteria such as having good credit, a stable income, and a low debt-to-income ratio. The exact requirements vary and depend on the type of conventional loan you are applying for. Typically, borrowers will need at least a credit score of at least 620, although it may require a higher score. You will also need to provide proof of income, which can include pay stubs, W-2s, and tax returns.
What are the Benefits of a Conventional Loan?
One of the main benefits of a conventional loan is that it allows you to borrow more money than government-backed loans. This is because there are no limits on the loan amount, unlike FHA loans, which have maximum loan limits based on the area you live in. Another benefit is that conventional loans usually have lower interest rates than government-backed loans, which can save you thousands of dollars over the life of the loan. Mortgage insurance is not mandatory with conventional loans if you put down at least 20% of the purchase price of the home, saving you hundreds of dollars in monthly mortgage payments.
What are the different types of Conventional Loans?
The most common type of conventional loan is a fixed-rate mortgage, which offers stable monthly payments over a set interest rate for the life of the loan. Another popular option is an adjustable-rate mortgage, which offers lower initial interest rates that can adjust up or down over time. Many borrowers also choose to take advantage of jumbo loans, which are designed for higher-priced homes that exceed the conforming loan limits of a traditional mortgage.
California Home Solution, Inc. is a licensed California mortgage broker (NMLS #260091, DRE #01303675) based in Woodland Hills, serving the greater Los Angeles area since 1998. If you have any additional questions, be sure to contact California Home Solution, Inc to see if a conventional loan is the right choice for you.
Frequently Asked Questions
What is a conventional loan?
A conventional loan is a mortgage that follows the funding criteria set by Fannie Mae and Freddie Mac and is not backed by a government
program like FHA or VA. It is the most common loan type and, for borrowers with solid credit and income, often the most cost-effective.
What credit score and down payment do I need?
Conventional loans generally start around a 620 credit score, with better rates as your score rises. Down payments can be as low as 3 to 5% for
many buyers. Putting down 20% lets you avoid private mortgage insurance entirely.
What is PMI and can I get rid of it?
Private mortgage insurance, or PMI, applies when you put down less than 20% on a conventional loan. Unlike FHA mortgage insurance,
conventional PMI can be removed once you reach 20% equity, either through payments or rising home value. This is one of the key advantages of a
conventional loan over FHA for borrowers who qualify.
Who is a conventional loan best for?
It is the best fit for borrowers with good credit, documentable income, and a reasonable down payment. If you qualify conventionally, it is usually
your lowest total cost. If you do not fit conventional guidelines, we have many other programs that will
