Conventional Loans

When you apply for a home loan, you can apply for a government-backed loan (such as a FHA or VA loan) or a conventional loan, which is not insured or guaranteed by the federal government. This means that, unlike federally insured loans, conventional loans carry no guarantees for the lender if you fail to repay the loan.

For this reason, if you make less than a 20% down payment on the property, you’ll have to pay for private mortgage insurance (PMI) when you get a conventional loan. (If you default on the loan, the mortgage insurance company makes sure the lender is paid in full.)

Conventional mortgage loans must adhere to guidelines set by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) and 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 and VA mortgages).

Generally, you can get a conventional loan if you:

  • have good credit
  • have a steady income, and
  • can afford the down payment.
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