A conventional loan is a home loan that the government does not back. That means it doesn’t come from FHA, VA, or USDA programs. Instead, it comes from private lenders such as banks, credit unions, or mortgage companies.
Many homebuyers choose conventional loans because they offer reasonable rates and flexible terms if you meet the requirements.
How Does a Conventional Loan Work?
When you apply for a conventional loan, the lender looks at your credit score, income, job history, and how much debt you have. You usually need a credit score of at least 620; the better your credit, the better your interest rate. The lender also wants to make sure you can afford the loan.
If approved, you’ll get a loan for a set amount. You agree to pay it back over time, usually in 15 or 30 years: the monthly payment includes part of the loan, plus interest.
Types of Conventional Loans
There are two main types:
1. Conforming Loans
These follow the loan limits set by Fannie Mae and Freddie Mac, two large government-sponsored companies. They have rules about how much you can borrow and who can qualify.
2. Non-Conforming Loans
These don’t follow those rules. A common type is a jumbo loan used for expensive homes. You need a higher credit score and more income to qualify.
Pros of Conventional Loans
- Lower interest rates if you have good credit
- Can be used for many types of homes
- Flexible down payment options (as low as 3%)
- No upfront mortgage insurance fee like FHA loans
Cons of Conventional Loans
- Need higher credit scores to qualify
- May need to pay private mortgage insurance (PMI) if your down payment is under 20%
- Stricter rules than government loans
Who Should Get a Conventional Loan?
A conventional loan is a good choice if:
- You have a steady income and good credit
- You can afford a down payment
- You want lower monthly payments
- You’re buying a second home or investment property
Conventional loans can also be used to refinance your current home loan if you want a better interest rate or lower payment.
Is a Conventional Loan Right for You?
A conventional loan gives you many options if your finances are strong. It may offer better rates, more flexible terms, and can save you money over time. It also comes with stricter requirements compared to some government-backed loans.
If you’re considering this type of financing, it’s smart to talk to someone who knows the local market. A Miami conventional loan expert who understands what works best for your situation can help you learn more and get help.