What You Should Know About Conventional Loans
What you need to know about the pros and cons of conventional loans.
If you’re looking to buy a home, you know that there are tons of financing options available. There are so many that it’s easy to become overwhelmed and not know where to start. In my new series, I’ll alleviate that confusion around the different types of financing by explaining the common loan types and each one’s pros and cons. Today I'll cover conventional loans.
The first loan type most buyers think of is the conventional loan. Based on the name, you may think there’s only one type of conventional loan, but there are actually two: conforming and non-conforming.
As the name implies, conforming loans adhere to FHA guidelines on credit, debt, and loan size. The conforming loan limit is $647,200, so anything more expensive will be non-conforming. Conventional loans can be used for primary residences, second homes, or investment properties. The borrowing costs are usually lower than other choices. Plus, you don’t need private mortgage insurance if you put 20% down.
Conventional loans are a great option if you can meet the requirements.
So why doesn’t everyone use a conventional loan? Unfortunately, not everyone can meet the requirements. You typically need a credit score above 620, a debt-to-income ratio no higher than 43%, and a higher down payment than some government loans. Conventional loans can also be a hassle since they require a lot of financial documentation.
You should consider a conventional loan if you have a strong credit score and can afford the down payment. The 30-year fixed-rate mortgage is the most popular choice among buyers for good reason. Your monthly payment will be lower, and you’ll build equity faster.
In the next post in this series, I’ll cover jumbo loans. As always, please call or email me with any questions you might have. I am always willing to help!