A conventional loan is a type of mortgage loan that is not insured or guaranteed by any government entity such as FHA, VA, and USDA. Conventional loans are also known as conforming loans because they “conform” to Fannie Mae and Freddie Mac standards. Conventional loans are much more common than government-backed financing and are used for about 3/4 of all new home sales, making them the most popular home loan option.
Conventional loans can be used to finance or refinance a primary residence, second home, vacation property or investment property. This is in contrast to government-backed loan programs which can only be used to finance a primary residence. Single-family homes, duplexes, 2-4 unit properties, condominiums, and townhouses are all eligible for a conventional loan.
If your shopping for a conventional loan, we’d love to help; we offer conventional home loans in Virginia including Blacksburg, Marion, Abingdon, Roanoke, Wytheville, Bristol, and the surrounding areas.
The minimum down payment on a conventional loan is 3% of the sales price. Although, the interest rate is lower by putting down 5% or more compared to the 3% down payment option. Conventional loans require private mortgage insurance, PMI, unless you put down at least 20%. PMI is insurance on the loan, the insurance will compensate the lender a portion of the loss in the case of a default by the borrower. Home possible and Home Ready are two loan options that have lower PMI rates, even when you only put down 3%, however, there are additional income restrictions on the Home possible and Home Ready loan programs.
One way to avoid PMI without paying 20% down is to get a lender-paid PMI loan, LPMI is a conventional loan that doesn’t require PMI, however the interest rate is a little higher than the PMI loan, LPMI can result in an overall lower payment which is a cost saving in the first several years but in the long run can cost the borrower more. This is a great option if the borrower is going to live in the house for only a few years. We can discuss the break-even point on a PMI vs lender-paid PMI loan to help determine the best possible loan for your scenario.
3-5% minimum down payment options
No private mortgage insurance (PMI) with 20% or more down.
Seller assistance with up to 3% of closing costs
Fixed Rates from 10 to 30 years
Higher loan limits than FHA
Lower PMI rates compared to FHA
Available for primary residence, second homes, and investment properties
Conforming loan amounts can go up to $484,350 and a maximum of $726,525 in high-cost areas. If you need a home loan above the conforming loan amounts, talk to us about our jumbo loans or our conventional high balance loans.
Example of a Conventional Home Loan Payment. Based on a $200,000 Loan with 5% down, 30 Year Fixed Rate of 4.5%
Principle and Interest $1013
Home Owners Insurance $50
Real Estate Taxes $175
Mortgage Insurance $67
Total Monthly Payment $1305
Criteria we review to qualify you for a conventional loan:
620 or higher middle credit score. Your credit score also affects your interest rate.
2 years of employment history.
Down payment availability ranging from 3-20%.
With offices in Blacksburg, Marion, and Abingdon we provide home loans to all of Southwest Virginia including Christiansburg, Roanoke, Wytheville, Bristol, and the surrounding areas.
First Residential Mortgage Corporation is an Equal Housing Lender. As prohibited by federal law, we do not engage in business practices that discriminate on the basis of race, color, religion, national origin, sex, marital status, age, because all or part of your income may be derived from any public assistance program, or because you have, in good faith, exercised any right under the Consumer Credit Protection Act. Disclaimer: Programs subject to change without notice. All borrowers must qualify per program guidelines.