Conventional Loans 101: Pros, Cons & More
What Is a Conventional Loan?
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?
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.
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
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.
Alternatives to a Conventional Loan
- A non-QM mortgage has flexible qualification criteria
- Non-traditional income sources may be considered
- Terms can be tailored to fit individual circumstances
- FHA loans are insured by the Federal Housing Administration
- Fixed and adjustable-rate mortgages are available
- Flexible down payment requirements
- 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
How Do I Know If a Conventional Home Loan Is Right For Me?
- 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
When Is the Best Time to Use a Conventional Loan? Â
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.
Get In Touch With a Loan Officer Today.
FAQ
How much interest will I pay on a conventional loan?
What documentation do I need to apply for a conventional home loan?
- 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
Can I get a conventional loan if I filed for bankruptcy or had a foreclosure?
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