Conventional Loans

One of the most common types of home loans is the conventional mortgage, which is not insured or guaranteed by the federal government. Instead, these loans are backed by private lenders and are often purchased by government-sponsored enterprises like Fannie Mae and Freddie Mac.
 

Conventional mortgages offer several advantages. These include competitive interest rates, flexible terms, and the potential to avoid private mortgage insurance (PMI) with a larger down payment. Additionally, conventional loans often have fewer restrictions compared to government-insured loans, making them an attractive option for borrowers with a strong credit history and stable income.
Eligibility Requirements

To qualify for a conventional mortgage backed by Fannie Mae or Freddie Mac, borrowers typically need a higher credit score and a lower debt-to-income ratio compared to other loan types. Additionally, a down payment of at least 3% is usually required, though a 20% down payment can help avoid PMI. Meeting these requirements can help ensure a smoother approval process and better loan terms.

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Conventional Loans: Everything You Need to Know

When it comes to buying a home, financing is a crucial aspect, and understanding your options is essential in making the right decision. Conventional loans are one of the most popular financing options and are offered by private lenders, including banks, credit unions, and other financial institutions. In this article, we will provide a comprehensive overview of conventional loans to help you make an informed decision.

What are Conventional Loans?

Conventional loans are mortgage loans that are not insured or guaranteed by the government, unlike FHA, VA, or USDA loans. Instead, conventional loans are backed by private lenders and investors. They conform to guidelines set by Fannie Mae and Freddie Mac, government-sponsored entities that purchase mortgages from lenders and package them for resale to investors.

Benefits of Conventional Loans

One of the key benefits of a conventional loan is the flexibility it offers. Conventional loans can be used to purchase primary residences, second homes, and rental properties. Additionally, conventional loans are available in fixed-rate and adjustable-rate (ARM) options, allowing borrowers to choose the type of interest rate that best suits their financial situation.

Another benefit is that conventional loans typically have lower interest rates than government-backed loans, which can save borrowers thousands of dollars over the life of the loan. Additionally, conventional loans offer more repayment options, including shorter loan terms, which can also save borrowers in interest payments.

Requirements for Conventional Loans

To be eligible for a conventional loan, borrowers must have a good credit score, typically a minimum of 620, a stable income, and a down payment of at least 3%. However, borrowers with a credit score of at least 680 may be eligible for a conventional loan with a down payment as low as 5%.

Borrowers should also be aware that conventional loans require private mortgage insurance (PMI) if the down payment is less than 20% of the home’s purchase price. PMI protects the lender in case of default.

How to Apply for a Conventional Loan

To apply for a conventional loan, borrowers must go through a private lender or financial institution. The lender will evaluate the borrower’s credit score, income, employment history, and debt-to-income ratio to determine eligibility and the amount of the loan.

Before applying for a conventional loan, borrowers should get pre-approved, which can help streamline the buying process and make the borrower more attractive to sellers. Borrowers can work with a loan officer to determine the best loan options and terms.

Get Started Today

At Franklin Mortgage Holdings, we understand that buying a home is a significant decision, and we are committed to helping you find the best financing solution. Our team of experienced loan officers can provide you with personalized service and guide you through the entire process. Contact us today to learn more about our conventional loan options and get started on your path to homeownership.

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