Conventional Loans typically meet the lending guidelines that have been set by Fannie Mae or Freddie Mac and require a borrower to have good-to-excellent credit, reasonable amounts of monthly debt obligations, a down payment of 5%, although both Fannie and Freddie have recently come out with a 3% down loan. Mortgage insurance is also required with less than 20% down but unlike government loans MI is priced according to the % of down payment. (80-85%, 85-90%, 90-95%)
Most Common Types of Conventional Loans
Fixed Rate Mortgages: Your rate and payment never change.
30 Year Fixed Loan Benefits: Lowest fixed monthly payments
20 Year Fixed Loan Benefits: Low fixed monthly payments
15 Year Fixed Loan Benefits: Lower rate than the 15 or 20 Year Fixed; Pay less interest and pay your home off more quickly.
3% Down HomeReady Mortgage Allows low down payment and reduced mortgage insurance
Adjustable Rate Mortgages: After the initial period your interest rate can change once a year.
3/1 ARM Fixed Rate for 3 Years, Adjustable Rate for the remaining 27 years
5/1 ARM Fixed Rate for 5 Years, Adjustable Rate for the remaining 25 years
7/1 ARM Fixed Rate for 7 Years, Adjustable Rate for the remaining 23 years
What are the Conventional Down Payment Requirements?
For Purchase transactions Conventional Loans require the home-buyer to put down at least 5% - 20% of the purchase price of the home. For a Refinance transaction, most lenders require at least 10% equity in the property. If you don't have enough equity to qualify for a conventional refinance - even if you owe more than your home is worth - you might be eligible for a HARP 2.0 Loan.
What types of property are eligible?
Most conventional loan programs allow you to purchase single-family homes, warrantable condos, planned unit developments, and 1-4 family residences. A conventional loan can also be used to finance a primary residence, second home and investment property.
Find Out if a Conventional Loan is Right for You
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