A conventional loan is a type of mortgage loan that is not insured or guaranteed by the government. Instead, the loan is backed by private lenders, and its insurance is usually paid by the borrower.

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Conventional loans offer buyers more flexibility, they’re also riskier because they’re not insured by the federal government. This also means it can be harder for you to qualify for a conventional loan. Conventional loans are much more common than government-backed financing. 

Because of this additional risk to the lender, you’re required to pay private mortgage insurance (PMI) on a conventional loan if you put less than 20% down.

There are also two types of conventional loans:

 

Conforming and non-conforming.

Here’s the difference:

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Conforming Conventional Loan

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In order to be considered a conforming conventional loan, the loan must meet the guidelines set by Fannie Mae and Freddie Mac. Fannie Mae (short for the Federal National Mortgage Association) and Freddie Mac (short for the Federal Home Loan Mortgage Corporation) are government-sponsored enterprises that purchase mortgages from lenders.

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One of Fannie Mae and Freddie Mac’s most important ground rules is loan limit. For 2020, the baseline loan limit for one-unit properties is $510,400. It’s called baseline because the maximum amount—or limit—you can borrow is adjusted every year to match housing-price changes. In certain high-cost areas, the loan limit may increase to a maximum of $765,600.

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Nonconforming Conventional Loan

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What about conventional loans that exceed the loan limit? These are considered non-conforming conventional loans.

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Simply put, a non-conforming conventional loan (also referred to as a jumbo loan) is a conventional loan not purchased by Fannie Mae or Freddie Mac because it doesn’t meet the loan amount requirements. Instead, non-conforming loans are funded by lenders or private institutions.

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You will also need a down payment to qualify for a conventional loan. Though you can put as little as 3% down when you get a conventional loan, we recommend putting at least 10% down. But 20% is even better because then you can avoid paying PMI!

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GUIDELINES

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• 1 % Down Payment

• 1% can be a gift

• Minimum credit score of 720

• Max DTI is 45%

• Lender contributes 2% up to $5k

• Borrower totals 3% equity at closing

• Close in less than 30 days

• Lender Credit to pay closing costs? YES!

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