Key features of conventional loans include:
Down Payment: The down payment amount can vary, but it's often around 3% to 20% of the home's purchase price.
Credit Requirements: Conventional loans generally have stricter credit requirements compared to government-backed loans. Borrowers typically need a higher credit score to qualify for a conventional loan.
Loan Limits: Conventional loans have loan limits set by the GSEs. These limits vary depending on the location of the property and can change annually.
Private Mortgage Insurance (PMI): If the down payment is less than 20%, borrowers are usually required to pay for private mortgage insurance. PMI protects the lender in case the borrower defaults on the loan. Once the loan-to-value ratio (LTV) drops to 80% due to payments or property value appreciation, PMI can often be canceled.
Property Types: Conventional loans can be used to finance various types of properties, including single-family homes, condominiums, and investment properties.
Interest Rates: Conventional loans may offer competitive interest rates, but the specific rate depends on factors such as the borrower's creditworthiness, down payment, and current market conditions.
Flexibility: Conventional loans can offer more flexibility in terms of property condition and use, making them suitable for a wide range of borrowers and property types.
It's important to note that while conventional loans are not backed by a government agency, they still must adhere to federal and state regulations and lending guidelines.
