A conventional (or conforming) loan is not formally backed by any government entity such as VA, FHA, and USDA. Rather, it is a loan that follows guidelines set by Freddie Mac and Fannie Mae, two agencies that help standardize mortgage lending. If you’re considering a conventional loan, bear in mind:
- A conventional loan is especially good for first-time borrowers with good credit, some assets and larger down payment. The minimum accepted credit score for most conventional loans is 620.
- The amount of the borrower’s down payment can affect the interest rate and final loan costs. A 20% down payment is not a requirement for a conventional loan; some are made with as little as 3% down.
- Private mortgage insurance, or PMI, is required for any conventional loan with less than a 20% down payment.
Please keep in mind most loan eligibility requirements and guidelines do have exceptions and are reviewed on a case by case basis.