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Conventional Loan

What is a Conventional Loan?

Conventional loans are loans that are not guaranteed, insured, or issued by the federal government. Since these loans are not held to federal standards, the details and specifics of the qualifications can vary by company. This flexibility can be a great benefit to potential home buyers. 

How can I benefit from applying for a Conventional Loan?

Conventional loans can seem riskier since they are not government backed; however, these loans can be more manageable for borrowers because conventional loans can offer lower insurance premiums than government backed loans. 

Conventional loans are typically recommended for borrowers who are financially secure and prepared to place a larger down payment. These borrowers are considered less likely to default and present a much lower risk to the lender. Since the borrower is assuming more of the risk in a conventional loan, many lenders advise placing at least 20% down on the property. There are alternative conventional loan programs that allow borrowers to place less down in order to stay competitive with the government backed counterparts issued by the Federal Housing Administration.  

Having good credit can also be extremely helpful when applying for a conventional loan. The borrower’s credit score can improve a number of variables that affect the terms of the loan. On top of that, it is important to remember that as a borrower, you are responsible for a few other various fees regarding the loan. These fees can include origination and appraisal fees, credit reports, and more. If your loan also requires mortgage insurance, there is likely an upfront premium to be made. Out-of-pocket costs can add up quickly, so save wisely and ask questions to ensure that you’re well prepared for any additional payments.

Tips for taking out a Conventional Loan:

Conventional loans fall into two categories: conforming and nonconforming.

Conforming loans follow the Freddie Mac and Fannie Mac guidelines that most government backed loans also adhere to. Loan limits can vary depending on the area.

Borrowers who do not qualify for a conforming conventional lon have the ability to apply for a nonconforming loans. These loans are intentionally designed for people interested in financing properties that are costly and well above the when the standard conforming loan limit. Nonconforming loans also come in a variety of types for different situations.

If you or someone you know is interested in taking on a conventional loan, we encourage borrowers to begin conducting their own research to get a feel for what loan programs may be best for their financial situation and goals. After some preliminary research, be sure to speak with an experienced loan officer. Our team is always happy to answer questions regarding the qualification and application process.

Our lenders can help you compare the different types of conventional loans to make sure you are getting the product that best suits your situation. We’re here to help you navigate through the process and properly account for any additional fees or other requirements. Generally, borrowers who have strong credit and have the ability to pay a larger down payment are suitable for a conventional loan.


*Fairway is not affiliated with any government agencies. These materials are not from HUD or FHA and were not approved by HUD or a government agency.





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