A conventional loan is a mortgage loan that’s not backed by a government agency. Usually, they are broken down into non-conforming and conforming loans. Conforming conventional loans follow the lending rules that are set by the Federal Housing Finance Agency (FHFA). But with non-conforming conventional loans, lenders provide some flexibility.

Conventional loans usually meet the funding criteria set by Fannie Mae and Freddie Mac. Moreover, lenders provide low interest rates to borrowers that have excellent credit scores. Conventional loans are usually serviced and originate from private mortgage lenders, which include credit unions, banks, among other financial institutions.

Conforming conventional loans meet all of Fannie Mae and Freddie Mac’s requirements, including maximum loan limits. In 2019, the normal conforming conventional loan maximum for a single-family house that you expect to live in is $484,350. The maximum can be as high as $726,525, but this only applies to borrowers in high-cost areas.

A lot of these lenders also provide government-insured mortgage loans. However, these loans don’t have the same perks as government-insured loans like mortgage insurance, no down payment, or low credit score requirements. All the same, there are qualifications for qualifying for a conventional loan.

There are conventional mortgage loans available with as little as a 3 percent down payment, and other lenders have special programs that offer up to 100% financing. If you don’t put down 20 percent or more, the lender will likely demand you to pay private mortgage insurance, which can cost anywhere from 0.3 percent to 1.5 percent of your annual loan amount.

These loans usually run for 30 years. However, homebuyers can qualify for a 15- to 20-year loan.

Here’s all you need to know about conventional loans.

Competitive rates and countless options

Homebuyers looking for a conventional loan have access to the most lending alternatives at the most competitive rates. Conventional loans are popular among both mortgage lenders and homebuyers since the risks and guidelines are well-defined.

Most lenders will provide a variety of Fannie Mae and Freddie Mac programs geared to different homebuyer scenarios, allowing you to shop around for the best rates and terms to get the most out of a conventional loan.

Benefits of a conventional loan

There’s no perfect mortgage loan for everybody. Therefore, it’s crucial for homebuyers to know the benefits and drawbacks of each mortgage option before they choose. Here are some of the benefits borrowers get from conventional loans.

• They have both adjustable- and fixed-rate options available
• Financing up to 97 percent of the purchase price – they go up to 95 percent with conforming high-balance
• Stability in an unstable world
• They offer peace of mind and some transparency
• They have lower interest rates and good credit
• They have low down payment options
• It enables savers to save money with a shorter term loan
• They can be utilized for a variety of homes
• They are cheaper to close
• Sellers prefer conventional loans

Who qualifies for a conventional loan and what are the limits?

As mentioned before, not everyone qualifies for a conventional loan. Homeowners need to meet specific requirements to qualify.

• Homebuyers need to have a credit score of at least 620 and have a qualifying debt-to-income ratio
• Individuals who don’t need to borrow more than their county limits
• Homebuyers with credit scores of 740 and above get attractive rates and they can make lower down payments

Limits of conventional loans

Here are some of the notable limits of conventional loans.

• Conventional loans have specific minimum down payment requirements
• Conventional loan amounts cannot exceed county loan limits – this varies from county to county.

What to do if you don’t qualify for a conventional loan

Conventional loans tend to be popular among sellers. However, not everyone qualifies for one because of the requirements and limits. They are also popular because they have clearly defined guidelines. For individuals who don’t meet these guidelines, the lender provides several options, including FHA loans, which enable homebuyers to acquire the property they’d like.

Homebuyers must also keep in mind that conventional loans are subject to underwriter approval. That implies that terms and conditions may apply. Moreover, these loans are subject to change without notice. Consequently, you must consult a tax advisor or consultant for full eligibility requirements on tax deduction.