Conventional Loans:

A conventional loan is a private mortgage not backed by the government, typically requiring a 620+ credit score and a 3%–20% down payment. Borrowers make monthly principal and interest payments, usually over 15 or 30 years, to a private lender. If the down payment is under 20%, private mortgage insurance (PMI) is required until 20% equity is reached. 

Three Types of Conventional Loans: 

• • Fixed Rate Mortgage: 
    Your rate and your monthly payment stay the same, year after year. No surprises, no drama.
  • Adjustable-Rate Mortgage (ARM): 
    Start with a lower interest rate (and lower payments) but be ready for it to adjust over time.
  • Jumbo Mortgage: 
    Need a pricier place? Jumbo loans cover homes above standard limits, often with stricter credit requirements.

Key Aspects of Conventional Loans: 

• • Lender-Driven: These loans are offered by banks, credit unions, and mortgage companies rather than being insured by the FHA, VA, or USDA.
  • Conforming vs. Non-Conforming: Most conventional loans are “conforming,” meaning they meet loan limits set by Fannie Mae and Freddie Mac. Loans exceeding these limits are “jumbo loans,” a type of non-conforming loan.
  • Down Payment & PMI: While 20% down eliminates the need for PMI, borrowers can put down as little as 3% (for first-time buyers) to 5%, with the trade-off of paying monthly PMI.
  • Interest Rates: Rates are largely determined by credit score, debt-to-income (DTI) ratio, and the size of the down payment.
  • Repayment Terms: Typically fixed-rate (stable payments) or adjustable-rate mortgages (rates fluctuate after an initial period), with 30-year terms being the most common.
  • Property Types: Can be used for primary residences, second homes, or investment properties. 

Process: 

• • Get Pre-approved: A lender reviews your credit, income, and assets to determine how much you can borrow.
  • Property Appraisal: The lender requires an appraisal to ensure the home’s value is sufficient for the loan.
  • Underwriting & Closing: The lender verifies all financial data and finalizes the loan, at which point you pay closing costs.
  • Repayment: Monthly payments begin, typically covering principal, interest, taxes, and insurance.