When shopping for a mortgage, you’re bound to encounter the term “conventional mortgage” or “conventional loan.” Here are some answers to the most frequently asked questions about conventional mortgage loans.
What is a Conventional Loan?
One of the most common types of loans that home buyers come across is the conventional loan. A conventional loan is a traditional loan that is used to purchase a property but is not backed or guaranteed by any government agency.
Conventional loans follow the guidelines that Fannie Mae and Freddie Mac – two agencies responsible for standardizing mortgage lending – have set. But it’s lenders that are responsible for approving your conventional loan.
What Are The Benefits of a Conventional Loan?
Conventional loans may offer some advantages that other loan types do not have. Down payments can be as low as 3%, there may be less paperwork, and you will not have monthly primary mortgage insurance (‘PMI’) with a down payment of at least 20%.
How Much is a Conventional Loan Down Payment?
A typical conventional loan down payment is 20%, but it is possible to get a conventional loan with less than 20% down, depending on borrowers who meet the specific requirements.
What Type of Documentation Do I Need?
Among the documentation you may need for a conventional loan are:
- Copy of driver’s license
- Two years full tax returns if self-employed – all pages and all schedules
- Two years W2’s
- Two most recent pay stubs with year-to-date pay
- Two most recent asset statements – all pages with full transaction history
- Copy of your mortgage statement if you currently own
What Types of Properties Can I Purchase?
You can purchase property types such as single-family homes, condos, and townhomes. These homes can be purchased as primary residences, second homes or investment properties.
What Credit Score Do I Need to Qualify?
To qualify for a conventional loan, you’ll typically need a credit score of at least 620-640. Having a high credit score is a huge advantage as borrowers can make lower down payments and tend to get the most attractive conventional mortgage rates.
How Long is the Loan Term?
The most popular term for conventional mortgage loans is 30 years, which typically offers a lower monthly payment as a result of spanning payments over a longer duration but often has a higher interest rate compared to adjustable-rate mortgages (ARMs).
In addition to the 30-year term, 15-year mortgages are also available. A 15-year mortgage is paid off in half the amount of time as a 30-year mortgage, but the monthly payment is often higher. For home buyers looking to eliminate mortgage debt more quickly, a 15-year fixed-rate loan could help them achieve those financial goals.
How Long Does It Take to Purchase a Home?
It takes about 30 days (give or take). This 30-day window assumes you have all your documentation present, provide accurate and verifiable information on your mortgage application and honoring any additional documentation requests that come from underwriting.
How Is My Interest Rate Determined?
The interest rate you qualify for is based on the risk you present. Lenders look at the following factors to determine that risk: credit scores, down payment, type of loan, mortgage insurance or no mortgage insurance and the current market.