A Conventional Loan is a mortgage loan that is not guaranteed or insured by the government. This type of loan is typically issued by private lenders, such as banks and credit unions. Conventional loans are subject to more stringent lending standards than government-backed loans, such as FHA loans and VA loans. This means that borrowers may need to have a higher credit score and a larger down payment in order to qualify for a conventional loan.
There are two main types of conventional loans: conforming loans and jumbo loans. Conforming loans are loans that meet the loan limits set by Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs). Jumbo loans are loans that exceed the loan limits set by Fannie Mae and Freddie Mac.
Conventional loans offer a number of advantages over government-backed loans. First, conventional loans typically have lower interest rates than government-backed loans. Second, conventional loans offer more flexibility in terms of loan terms and conditions. Third, conventional loans are not subject to the same prepayment penalties as government-backed loans.
However, conventional loans also have some disadvantages. First, conventional loans may be more difficult to qualify for than government-backed loans. Second, conventional loans may require a larger down payment than government-backed loans. Third, conventional loans may not be available for all borrowers.
Overall, conventional loans are a good option for borrowers who are looking for a mortgage loan with lower interest rates and more flexibility than government-backed loans. However, it is important to carefully consider your financial situation and your borrowing needs before you decide whether a conventional loan is right for you.
Here are some of the pros and cons of conventional loans: