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What is a Conventional Mortgage Loan?

When you look into the types of mortgage loans available on the market, you have either loans that are insured (or, backed) by the federal government, or those offered by private mortgage lenders such as banks, credit unions or other lending institutions.

Loan options that are backed by the government include FHA loans and VA loans, guaranteed by either the Federal Housing Authority or the US Department of Veterans Affairs.

All about Conventional Loans

Term: Conventional mortgages are generally offered in term of repayment periods of either 15 or 30 years, although some lenders also offer terms of 20 years.

Credit Needed to Qualify: The credit score you’ll need to have to qualify for a conventional mortgage will vary somewhat depending on each lender’s specific requirements, but generally a score of 620 is the minimum score needed to obtain a mortgage loan. In order to qualify for the most competitive and lowest interest rates, you’ll want to have a score of at least 740.

Loan Limits: There are two buckets of conventional mortgage loan limits: loans will either be “conforming” or “non-confirming”. Conforming loans are mortgage loans that conform to government sponsored GSE guidelines, and are loans that (as of 2014), were $147,000 and below. Areas of the US which have been designated as high-cost living areas have higher limits for conforming loans – up to about $720,000. Non-conforming loans are loans which, as their name suggests, don’t conform in one way or another to the set guidelines and standards for mortgages. Often that is because the loans are for amounts higher than those listed above for conforming loans. Non-conforming loans for amounts over those listed above are also known as “jumbo loans”, and they usually carry a higher interest rate than conforming loans because jumbo loans are harder for lenders to resell on the secondary market because of the terms of the loan, and the amounts owned by borrowers. Additionally, private mortgage loans made to borrowers who don’t qualify for a conforming loan due to low credit scores or a recent bankruptcy are other types of non-confirming loans.

When you’re ready to start looking at purchasing a home, you’ll want to compare your options between FHA, VA and conventional mortgage loans to determine which loan option is best for you and your family. Conventional loans are a great option for well-qualified home buyers: those with credit scores of at least 740 and who have down payments of around 20% of the total home purchase price.

Contact our home mortgage brokers in San Ramon for home mortgage loan and mortgage refinancing.