Conventional Loan
Conventional loans are a popular mortgage option for many homebuyers, offering flexibility and competitive terms. Unlike government-backed loans, conventional loans are not insured by federal agencies, making them suitable for borrowers with strong credit profiles.
Who Can Qualify?
- Individuals with a good to excellent credit score
- Borrowers with a stable income and employment history
- Applicants with a low debt-to-income ratio
- Those able to make a down payment (On Average 3% to 5%)
- Those seeking primary, secondary, or investment properties
Benefits of A Conventional Loan
Conventional loans make a versatile and appealing choice for many homebuyers. However, it’s essential to assess your financial situation and consult with a mortgage professional to determine the best loan option for your needs.
Frequently Asked Questions about Conventional Loans
What is a conventional loan?
A conventional loan is a mortgage that is not insured or guaranteed by the government (like FHA, VA, or USDA loans). Instead, it follows guidelines set by Fannie Mae and Freddie Mac and is offered by private lenders, such as banks and credit unions.
What are the credit score requirements for a conventional loan?
Most conventional loans require a minimum credit score of 620. However, some lenders may have stricter requirements. Borrowers with a higher credit score (typically 740 or above) can qualify for lower interest rates and better loan terms. Lenders also review credit reports to check for recent bankruptcies or foreclosures, which may impact eligibility.
How much down payment is required for a conventional loan?
Conventional loans typically require a down payment of 5% or more, but at Pride Lending, we offer 97% loan-to-value (LTV) loans, allowing well-qualified borrowers to put down as little as 3%. A 20% down payment eliminates the need for private mortgage insurance (PMI) and can help secure a lower interest rate.
What is Private Mortgage Insurance (PMI), and when is it required?
PMI is insurance that protects the lender in case the borrower defaults on the loan. It is required when the down payment is less than 20%. PMI costs vary based on credit score and loan amount but typically range from 0.2% to 2% of the loan amount per year. Borrowers can request PMI removal once their loan-to-value (LTV) ratio drops below 80%.
What are the debt-to-income (DTI) ratio requirements?
Most conventional lenders follow the 28/36 rule, meaning no more than 36% of a borrower’s gross monthly income should go toward total debt payments, with a 28% cap on housing expenses (including mortgage, taxes, and insurance). Some lenders allow DTI ratios up to 43%, but borrowers may need a stronger credit score or higher down payment to qualify.
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