Conventional Standard

One of the most common types of loans that homebuyers come across is the Conventional loan. These loans are not backed by the government like FHA and VA loans. Conventional loans follow guidelines set by Fannie Mae and Freddie Mac – two agencies responsible for standardizing mortgage lending. However, it is the lender, such as a bank, that is responsible for approving your Conventional loan.

The documents you may need for a Conventional loan include
– Fully completed loan application (Form 1003)
– Copy of driver’s license
– Two years of complete tax returns if you’re self-employed – all pages and all schedules
– Two years of W2’s
– Two most recent pay stubs showing year-to-date pay
– Two most recent bank statements – all pages with full transaction history
– Copy of mortgage statements for all properties owned, if you currently own real estate

You can purchase property types such as single-family homes, 1-4 unit buildings, condominiums, and townhomes. These homes can be purchased as primary residences, second homes, or investment properties.

Private Mortgage Insurance (PMI) is typically required on a Conventional loan and any Fannie Mae/Freddie Mac loan when there is less than a 20% down payment/equity position. PMI is intended to reduce a lender’s risk on loans where the borrower has less than 20% equity. If you have a Conventional loan, you won’t have to pay PMI for your entire loan term. Instead, it automatically terminates once you’re scheduled to reach 78% LTV—that’s equal to 22% of equity for you—on your loan.

Credit score requirements for Conventional loans vary from lender to lender, but a Conventional loan may require on average a higher credit score than an FHA loan. For A&D Mortgage’s Conventional loans, you need to have at least FICO 620.

The minimum down payment for a Conventional loan is 3% for a fixed-rate mortgage and 10% for an adjustable-rate mortgage. It is best to have saved as much as possible for a Conventional loan down payment because a down payment of 20% or more can eliminate the need to pay monthly private mortgage insurance (“PMI”).

Fannie Mae and Freddie Mac set Conventional loan limits and they can vary by different areas in the U.S. To see what the loan limit is in your area, click here

Conventional loans can offer some advantages over other types of loans. They require down payments as low as 3%, there may be less paperwork, and you may not have to pay monthly primary mortgage insurance (“PMI”) with a down payment of at least 20%.