Conventional mortgage loans must meet all the guidelines set by the Federal National Mortgage Association (Fannie Mae) and/or the Federal Home Loan Mortgage Corporation (Freddie Mac). These loans are available to everyone, but they are more difficult to qualify for than VA and FHA loans. Since there is no government insurance, conventional loans pose a higher risk for lenders, so credit and income requirements are stricter than for FHA, VA and USDA mortgages. Your interest rates for conventional programs are usually higher because of that risk.
Conventional mortgages are very straight forward. Generally, you can get a conventional loan if you:
Best fit for this type of loan: Conventional loans are ideal for borrowers with good credit and money for a down payment
Percentage of gross monthly income that is spent on debt payments, including mortgages, student loans, auto loans, minimum credit card payments and child support.
Cost: Lender fees, third-party fees, down payments, mortgage insurance and points can mean the borrower must show up at closing with a sizable sum of money out of pocket.
Pros: Conventional mortgages generally pose fewer hurdles than government-backed mortgages, which may take longer to process. PMI will automatically drop off after 22% equity. Minimum Down payments of 3%-5%. Typically, conventional loans have lower monthly mortgage insurance than FHA
Cons: You’ll need excellent credit to qualify for the best interest rates. Rates are still usually higher than FHA, VA or USDA loans. Stricter guidelines on ratios and credit.