What is a Conventional Loan?

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Last Updated: 9/11/2021

What is a conventional loan? This is a common question among first time homebuyers who are considering their home loan options. A conventional home loan is a popular choice, however, it is important to know what this loan type entails. To better understand if a conventional loan is a good fit for you, read on to learn about what is a conventional loan, the benefits of a conventional loan and how to qualify for one today.

What is a Conventional Loan?

A conventional loan is a home loan not backed by a government agency or program (unlike FHA mortgage loans, which are backed by the Federal Housing Administration). Conventional loans follow guidelines set by Fannie Mae and Freddie Mac and can be broken down into two categories: conforming and non-conforming loans.


What is a Conventional Loan? Conforming vs Non-Conforming

Conforming loans are mortgages that conform to the limits set by the Federal Housing Finance Agency (FHFA). They must meet underwriting guidelines set by Fannie Mae and Freddie Mac and typically can not exceed $548,250. Non-conforming loans, on the other hand, do not have to abide by these regulations and therefore larger loan amounts can be granted.


What is a Conventional Loan Benefit?

Conventional loans provide vast financial benefits, including multiple term options, payment flexibility and financial stability. Plus, most conventional home loans do not require a large down payment, making it a great option for first time homebuyers with smaller budgets.


Conventional loans are offered in 30, 20 and 15 year terms at a fixed interest rate, which provides a predictable monthly payment. With a fixed rate mortgage, the borrower is protected from any sudden market changes because the interest rate stays the same throughout the life of the loan. The mortgage payment doesn’t change with the fluctuating market.


With multiple term options available for a conventional loan, you can choose the one that offers benefits most relevant to your situation.


30 year Fixed-Rate Mortgage Benefits

A 30 year loan term offers a lower monthly payment compared to shorter-term loans. However, it often comes with a slightly higher interest rate. Nevertheless, because of its flexibility and ease, a 30 year fixed-rate mortgage is one of the most common choices for homebuyers.


Consider a 30-Year Loan.

Terms and conditions apply. Rates are subject to change.


15 year Fixed-Rate Mortgage Benefits

A 15 year loan term comes with a lower interest rate than a 30 year. However, it does require a much larger down payment. Still, for those wanting to build equity faster and pay off their home sooner, a 15 year fixed mortgage may be a great option.


Consider a 15-Year Loan.

Terms and conditions apply. Rates are subject to change.


20 year Fixed-Rate Mortgage Benefits

A 20 year loan term is a great option for those wanting a shorter term than a 30 year, but a lower monthly payment than a 15 year mortgage. You can choose the preferred situation for you.


Consider a 20-Year Loan.

Terms and conditions apply. Rates are subject to change.


Conventional home loans work for a variety of circumstances and budgets. Additional benefits include the ability to avoid paying Private Mortgage Insurance (PMI), as well as the ability to purchase a second home or an investment property without needing a large down payment upfront.


How to Qualify for a Conventional Home Loan

Basic conventional loans do have some minimum requirements. Because conventional loans are not government-backed, they are risky for lenders, so the qualifying process can be more strict. Generally speaking, to qualify for a conventional loan you need a credit score of 620 or higher and a down payment of 3 percent.


Now that you know what is a conventional loan, the suggested way to begin the process of qualifying for one is to talk to a direct mortgage lender today. A Wyndham Capital Mortgage, we provide you with the knowledge and tools to compare mortgage rates with our free mortgage calculator so you can determine the right loan option for you.


Maggie joined the Wyndham Capital Mortgage team in November 2020 as a Content Strategist. She has more than six years of content creation experience, which includes launching WBTV’s digital brand Queen City Weekend (now QC Life) and garnering more than 1.1 million page views across her articles. With a love of storytelling, she hopes to bring that passion to WCM and the many families it serves. She resides in Charlotte, North Carolina, and can often be found at a coffee shop, latte in hand.

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