A conventional mortgage loan is one of a class of generic loans that can be originated by any lender, as opposed to loans guaranteed or issued by a government agency—like FHA, USDA or VA loans. Because more entities originate conventional loans, they can come in a variety of packages.
Types of conventional mortgages
May be an easier qualification process than non-conforming loans. If a single-family conventional mortgage loan is conforming, it means that it may be eligible for purchase from a lender by one of the two government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. GSEs purchase conventional mortgage loans to help free up lender capital, allowing them to originate more loans for consumers.
The primary measure for whether a conventional loan is conforming is if the amount of the loan falls under a certain cap established by the government. In order to qualify for a conforming loan, borrowers will likely need a higher credit score than may be required for an FHA, USDA or VA loan.
Non-conforming (AKA “jumbo” loans)
May be a more stringent qualification process, but you can get a greater loan amount. When a conventional loan exceeds the government’s conforming loan limits, it’s known as a non-conforming or jumbo loan. Because jumbo loans may be riskier for the lender (given the larger loan amount), the approval process may be more stringent. For example, you’ll likely need a higher credit score, and possibly a larger down payment, to get approved for a jumbo loan than you would for a conforming loan.
- Lower down payment option: Qualified borrowers that get a conforming conventional loan may be able to enjoy a down payment as low as 3%.
- Gift funds may be allowed: Pay down 20% or more and the entire amount may be able to be paid by gift funds. Pay less than 20% down and it might still be possible to receive gift funds, but you’ll also have to contribute some of your own money toward the down payment.
- Competitive rates: Because conventional loans often require a higher credit score than government-insured or government-guaranteed mortgage loans, rates may often be lower than FHA, VA or USDA loans offer.
- Zero or temporary mortgage insurance requirements: Mortgage insurance is not required if you pay at least 20% of the loan down. Even if your down payment is less than 20%, you’ll only have to pay mortgage insurance premiums for a limited period of time—generally until your home’s loan-to-value (LTV) ratio has reached 80% (based on actual payments or when the LTV ratio was scheduled to reach 80% based on the original amortization schedule). For a loan insured or guaranteed by the government, mortgage insurance premiums may be required up to the life of the loan.
- No first-time homebuyer requirement: A history of homeownership will not impact your ability to get a conventional loan, but it may impact your ability to qualify for a government-insured or government-guaranteed loan.
How can I learn more?
You can contact a HomeAmerican Mortgage Corporation (HMC) loan officer to learn about current programs and find out how to qualify. Call toll-free at 866-400-7126 today!
Check out other loan articles on the Richmond American blog!
Note: HomeAmerican Mortgage Corporation’s principal offices are located at 4350 S. Monaco Street, Suite 200, Denver, CO 80237. HomeAmerican Mortgage Corporation (NMLS Unique Identifier #130676; NMLS Consumer Access website: http://www.nmlsconsumeraccess.org), 866-400-7126. Arizona Mortgage Banker license #0009265. Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act. Colorado Mortgage Loan Originator License #LMB100019179. Check the license status of your mortgage loan originator at http://www.dora.state.co.us/real-estate/index.htm. In Nevada, all advertised loans are offered and funded by HomeAmerican Mortgage Corporation, which can be contacted at 7770 S. Dean Martin Drive, Suite 308, Las Vegas, NV 89139, 702-638-4450, License #67. Licensed by the New Jersey Department of Banking and Insurance. Licensed by the Virginia State Corporation Commission, MC-358. Licensed by the Washington State Department of Financial Institutions (CL-130676).