A conventional loan is a type of mortgage that is not backed or insured by a government agency, such as the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the US Department of Agriculture (USDA). Instead, conventional loans are typically offered by private lenders such as banks, credit unions, or mortgage companies.
Conventional loans generally require higher credit scores and down payments compared to government-backed loans. Lenders typically require a minimum credit score of 640 for conventional loans, although some lenders may have stricter credit score requirements. Conventional loans also require a down payment, with the minimum typically ranging from 3% to 5% of the home’s purchase price.
One of the main advantages of conventional loans is that they typically offer higher loan amounts compared to government-backed loans. Conventional loans may also offer more flexibility in terms of loan terms and repayment options. However, borrowers may need to have higher credit scores and larger down payments to qualify for conventional loans.
Conventional loans are available for a variety of property types, including single-family homes, townhomes, and condominiums. They can also be used for investment properties or second homes. The loan limits for conventional loans vary by location and are updated annually by the Federal Housing Finance Agency.