Conventional Loan
Definition:
A Conventional Loan is a type of mortgage that is not insured or guaranteed by a government entity, such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). These loans typically require higher credit scores and down payments compared to government-backed loans, but they offer more flexibility in terms of loan size and property type.
🔍 Did You Know?
Conventional loans can be either conforming or non-conforming, with conforming loans meeting the guidelines set by Fannie Mae and Freddie Mac, and non-conforming loans exceeding those limits (also known as jumbo loans).
Examples:
Example 1:
A homebuyer with a strong credit score and 20% down payment secures a conventional loan to purchase a $400,000 home.
Example 2:
An investor uses a non-conforming conventional loan to purchase a luxury property that exceeds the loan limits set by Fannie Mae and Freddie Mac.
Why It’s Important:
Conventional loans are the most popular type of mortgage for homebuyers, offering flexibility and competitive interest rates for borrowers with good credit. They are ideal for those who don’t qualify for government-backed loans or who want to avoid the added costs of mortgage insurance.
Who Should Care:
- Homebuyers with strong credit looking for favorable loan terms.
- Real estate investors financing properties outside of government programs.
- Lenders offering a variety of conventional loan products.
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