November 10, 2020
What Is a Conventional Loan?
Some mortgage terms are thrown around more than others, so having a basic understanding of what each term means can make the entire home buying process a lot easier.
There are many different types of loans including VA Loans, Jumbo loans, adjustable rate mortgages (ARMs), Federal Housing Administration (FHA) loans, and more. Some of these loans are backed by the government, such as VA Loans. However, conventional loans are not secured or offered by the government but are offered by private lenders like PenFed.
How Is a Conventional Loan Different from Other Mortgage Loans?
Mortgage loans — like VA Loans or FHA loans — are backed by the government, which simply means that they are less risky for the lender. The typical conventional loan homebuyer makes a larger down payment and may also be more financially secure. It’s not necessary to make a 20% down payment for a conventional loan but a larger down payment translates to lower monthly payments. Also remember that if you're putting down 20% or more, there will be no Private Mortgage Insurance (PMI) requirement.
What Are the Benefits of a Conventional Loan?
- Possibly pay a lower down payment
- Avoid PMI if you make a down payment of 20% or more
- Remove the monthly PMI payment if the equity in your home reaches or exceeds 20%
- Receive a flexible term length — 15, 20, or 30 years
- Use a conventional loan for your primary residence, vacation homes, and investment properties
What Is a Good Credit Score for a Conventional Loan?
A typical minimum credit score is 620 but to get the best rates — the higher your credit score, the better. 740 is a good minimum score to shoot for to get the best interest rates on a conventional loan. In addition to a strong credit score, you'll also need a debt to income (DTI) ratio of now higher than 50%. The lower your DTI, the better.
Is a Conventional Loan Right for Me?
There is no one-size-fits-all for home loans. If you aren't eligible for a VA Loan, have a good credit score, and make a decent down payment — a conventional loan may be the best choice for you because of its attractive rates and low fees.
To learn more about PenFed conventional loans or what loan is right for you:
- Call 866-386-7254
- Visit the Mortgage Center