A conventional loan is a type of mortgage used to buy a home that isn’t backed by the government. This means it comes from private lenders, like banks or credit unions, and follows their own set of rules, rather than government programs.
Down Payment: When you get a conventional loan, you usually need to make a down payment. This is a portion of the home's price that you pay upfront. It can be as low as 3% of the home’s price for some loans, but putting down more can help you avoid extra costs later.
Credit Score: Lenders will look at your credit score to decide if you qualify for the loan and what interest rate you’ll get. A higher credit score usually helps you get a better deal.
Loan Limits: There’s a maximum amount you can borrow with a conventional loan, which varies based on where you live. In some expensive areas, this limit is higher to accommodate higher home prices.
Interest Rates: You can choose between different types of interest rates with a conventional loan. A fixed-rate mortgage keeps the same interest rate for the entire loan term, making your payments predictable. An adjustable-rate mortgage might start with a lower rate that can change over time.
Private Mortgage Insurance (PMI): If you put down less than 20% of the home’s price, you might need to pay for PMI. This insurance protects the lender if you don’t make your payments. Once you’ve paid off a certain amount of your loan or your home’s value increases, you might be able to stop paying PMI.
Why Choose a Conventional Loan?
Conventional loans are often flexible and offer competitive rates, especially if you have good credit. They’re a popular choice for many homebuyers because they don’t have the special requirements of government-backed loans.
