What is a Conventional Home Loan?


A Conventional loan is a home loan program that is not backed by a government agency, but has many of the benefits that government loans have to offer and, more. Conventional home loans come in several different varieties; whether you are a first-time homebuyer, looking for an investment property, or wanting to refinance your current home, there is a conventional option for you. Below, we’ll go through some of the different types of conventional loans along with the benefits they have to offer, and what to expect for a down payment.

What is a conventional home loans - USA Mortgage

Benefits of Conventional Home Loans

  • In most cases, Conventional loans require less documentation to qualify.
  • Suited for all types of properties including: primary, investments, second homes, manufactured homes, etc.
  • You are allowed to have more than one conventional loan.
  • The required down payment can be as little as 3%, depending on the conventional product.
  • Conventional loans can be paired with down payment assistance programs, which offer little to no money down.
  • Low to no private mortgage insurance.
  • If you are required to have mortgage insurance, it can fall off the loan after a period of time or in some cases, be cancelled early. Both would be dependent on the individual loan scenario.
  • Both fixed rates and adjustable rates (ARMs) with loan terms ranging from 10-30 years are available.

Different Types of Conventional Home Loans

Conforming Conventional Loan

  • Conforming Conventional loans meet the requirements for Fannie Mae and Freddie Mac, which are the two largest mortgage buyers in the U.S.
  • Conforming loans require less documentation as they are less risky, in most cases.
  • Typically, these have lower interest rates.

Fixed Rate Conventional Loan

  • A fixed rate conventional loan has a set interest rate for the life of the loan.
  • Home loan payments are more manageable, as the principal and interest portion of your payment won’t increase due to rates fluctuating.
  • Fixed rates are easier for homebuyers to understand.

Adjustable-Rate Mortgage (ARM) Conventional Loan

  • A Conventional Adjustable-Rate Mortgage (ARM) is a loan where the interest rate changes periodically throughout the duration of the home loan.
  • The principal and interest portion of your monthly payment fluctuates as far as going up or down, so as a homeowner you want to make sure you can afford a higher home loan payment if needed.
  • The adjustment period is determined on the ratio. For example, you’ll see: 5/1, 5/6, 7/1, etc. The first number indicates the fixed period in which your rate will stay the same. The second number indicates how often it will adjust. A 5/1 ARM will have a fixed rate for the first 5 years and adjust each year after that for the duration of the loan.
  • Some ARMs will have caps for how high the interest rate can rise. There are two types of caps: a periodic adjustment cap, and a lifetime cap.
    • A periodic adjustment cap limits the amount the interest rate can rise or fall from one adjustment period to the next.
    • A lifetime cap limits the how much the interest rate may adjust over the lifetime of the loan.

Down Payment for Conventional Mortgage

Determining how much you may need to save up for your down payment can be tough. Here are a few things you should know when it comes to saving for a down payment:

  • The more you can put down, the less you’ll spend monthly and over the life of the loan.
  • Having a higher credit score can help you lower the amount of the down payment you decide to bring in by giving you a lower interest rate.
  • The down payment amount helps to determine your PMI rate and interest rate, which will affect your monthly payment amount and overall interest costs.
  • Gift funds from an eligible donor may be used to pay for your entire down payment, and loan closing costs on certain loans.
  • Adjustable-rate conventional loans can start out at 5% down.
  • Look into down payment assistance programs; at USA Mortgage we offer a few different options to pair with Conventional home loans.

Conventional home loans tend to have lower costs, better interest rates, and more flexibility in your homebuying experience. It is very often the loan option of choice for many mortgage applicants – no surprise there.

Are you ready to apply for a Conventional mortgage loan? Reach out to the USA Mortgage- Abadi Branch today!!

FAQ: Understanding Conventional Home Loans

What are the benefits of a conventional home loan?

Conventional home loans are appealing due to their flexibility in property types, including primary residences, investment properties, and second homes. They require less documentation, allow for multiple loans per borrower, and offer down payments as low as 3%. Additionally, they may have low to no private mortgage insurance (PMI), and if PMI is required, it can often be removed after building enough equity, saving homeowners on monthly payments.

What types of conventional home loans are available?

There are several types of conventional loans, each catering to different financial needs. Conforming loans meet the criteria set by Fannie Mae and Freddie Mac, usually requiring less documentation and offering lower interest rates. Fixed-rate loans keep the same interest rate throughout the loan, ensuring consistent monthly payments. Adjustable-rate mortgages (ARMs) start with a fixed rate but adjust periodically, potentially increasing payments over time.

What should I know about down payments for conventional mortgages?

The down payment on a conventional loan can vary. A higher down payment can reduce monthly payments and overall interest costs. Credit scores also influence the required down payment amount, with higher scores potentially lowering it. Down payment assistance programs can further aid buyers, and funds from eligible donors can cover both down payment and closing costs.

USA Mortgage Abadi Region

USA Mortgage Abadi Region

A full-service mortgage lender with local branches in Missouri, Arkansas, Illinois, and nearby areas.