Conventional Loans 101: Pros, Cons & More

Conventional Loans 101: Pros, Cons & More

Conventional loans offer versatile financing options to qualified borrowers and can be tailored to fit a wide variety of needs. Whether you’re a first-time homebuyer or looking to refinance, these mortgages provide competitive interest rates and fewer restrictions compared to government-backed home loans.

Conventional Loans 101: Pros, Cons & More

What Is a Conventional Loan?

A conventional loan is a type of mortgage that is not government-backed and adheres to guidelines established by Fannie Mae and Freddie Mac. A conventional loan has:

Competitive terms

Borrowers with strong credit scores and larger down payments often qualify for competitive interest rates and may be able to opt out of private mortgage insurance (PMI).

Higher borrowing limits

If a property exceeds conforming loan limits set by Fannie Mae and Freddie Mac, a jumbo conventional loan may be available. This is ideal for homes that are located in high cost-of-living areas.

Options for both fixed and adjustable-rate mortgages

Conventional loans give borrowers the flexibility to choose the loan structure that best suits their financial goals.

What Can a Conventional Loan Be Used For?

First homes

Borrowers can purchase a house with as little as 3% down, making conventional loans a popular choice for first-time homeowners.

Investment properties

Conventional loans can also be used to finance multifamily properties with up to 4 units, giving homeowners the potential for additional income.

Debt consolidation

A conventional loan can also be used to refinance an existing mortgage to consolidate high-interest debts into one convenient monthly payment.

NYFTY Lending Loan Pros

Pros

  • Competitive interest rates for strong credit scores
  • Can be used in multiple ways
  • Buy with as little as 3% down
  • No PMI with 20% down or 20% equity accrual
NYFTY Lending Loan Cons

Cons

  • May have stricter credit score and debt-to-income ratio requirements than other loan programs
  • Loan limits may prevent the purchase of some properties in high-value locations

Talk to our mortgage experts today about finding the right loan for you.

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Alternatives to a Conventional Loan

Non-QM Mortgages

  • A non-QM mortgage has flexible qualification criteria
  • Non-traditional income sources may be considered
  • Terms can be tailored to fit individual circumstances
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FHA Loans

  • FHA loans are insured by the Federal Housing Administration
  • Fixed and adjustable-rate mortgages are available
  • Flexible down payment requirements
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VA Loans

  • VA loans are backed by the U.S. Department of Veterans Affairs
  • Offers competitive interest rates for qualified borrowers
  • A $0 down payment option may be available
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How Do I Know If a Conventional Home Loan Is Right for Me?

A conventional home loan could be the right fit for you if:
  • You have a high credit score
  • You can afford a down payment of at least 3%
  • You don’t owe a lot of other debt
  • You’re buying a second property
  • You can pay for private mortgage insurance

With attractive terms and flexible repayment options, conventional loans can be a practical option for borrowers who meet qualification criteria. Whether you’re purchasing or refinancing, these programs offer dynamic solutions for a wide variety of circumstances.

When Is the Best Time to Use a Conventional Loan?

The best time to use a conventional loan is when you have a great credit profile and want to shop around for the most competitive interest rates. They’re also a great fit for borrowers who want to avoid the upfront mortgage insurance premiums required for government-backed loans.

If your priorities are customizable financing and long-term savings, you may benefit from a conventional mortgage.

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FAQ

The interest rate for a conventional loan varies and is based on factors like your credit profile and current market rates. In some cases, you may be able to secure a more competitive interest rate with a larger down payment.
When applying for a conventional mortgage, you will need several important documents to prove your income, identity, and other critical information. This includes but isn’t limited to:
  • A valid, government-issued ID
  • Your social security card
  • Recent pay stubs from the last 30 days
  • W-2s, 1099 forms, and tax returns from the last 2 years
  • Proof of employment
  • Bank statements
How long it takes for your FHA loan to be approved is based on several factors that are unique to your situation. Most borrowers will close on their new homes in about 30 to 45 days, but this could vary depending on your circumstances.
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