1. Down Payment:
Typically, conventional loans require a down payment of at least 3-5%. However, to avoid Private Mortgage Insurance (PMI), a 20% down payment is ideal.
2. Credit Requirements:
Conventional loans often require a higher credit score compared to government-backed loans. FICO Score of 620 or higher.
3. Debt-to-Income Ratio (DTI):
We typically prefer a DTI ratio below 45% but may allow higher ratios with strong compensating factors up to 49%.
4. Loan Limits:
There are limits to how much you can borrow with a conventional loan, which vary by region. These are set by Fannie Mae and Freddie Mac. If you need a loan amount higher than this, you´ll be looking at a jumbo loan, which is a type of conventional loan but has its own set of rules and requirements.
5. Interest Rates:
Interest rates can be either fixed or adjustable. Fixed-rate mortgages lock in an interest rate for the life of the loan, ensuring consistent payments. Adjustable-rate mortgages (ARMs) have interest rates that can change after an initial fixed period.
6. Property Types:
Conventional loans can be used to purchase primary residences, second homes, and investment properties.
7. Terms:
They can come in various term lengths, with 15 and 30 years being the most common, though other durations such as 10, 20, or 25 years are also available.
8. Loan Processing:
Since these loans aren´t government-backed, they might have a faster processing time compared to, say, FHA loans that have additional layers of approval.
9. Refinancing:
Homeowners with a conventional loan can also refinance into another conventional loan. This is often done to secure a lower interest rate or to switch from an ARM to a fixed-rate loan.
