what is a conventional mortgage or loan 
a conventional mortgage is a homebuyer s loan made through a private lender compared to a federal housing administration fha loan a conventional loan often requires a higher credit score to qualify 1conventional loans are not offered or secured by a government entity instead these mortgages are available through private lenders such as banks credit unions and mortgage companies however some conventional mortgages can be guaranteed by the two government sponsored enterprises gses the federal national mortgage association fannie mae and the federal home loan mortgage corp freddie mac 2understanding conventional mortgages and loansconventional mortgages can have a fixed or variable interest rate conventional mortgages or loans are not guaranteed by the federal government and as a result typically have stricter lending requirements by banks and creditors there are a few government agencies that secure mortgages for banks such as the federal housing administration fha which offers low down payments and no closing costs 3 two other agencies are the u s department of veterans affairs va and the u s department of agriculture s usda s rural housing service neither of which requires a down payment 45 however there are requirements that borrowers must meet to qualify for these programs upfront fees on fannie mae and freddie mac home loans changed in may 2023 fees were increased for homebuyers with higher credit scores such as 740 or higher while they were decreased for homebuyers with lower credit scores such as those below 640 another change your down payment will influence what your fee is the higher your down payment the lower your fees though it will still depend on your credit score fannie mae provides the loan level price adjustments on its website 6example of conventional mortgageif you meet the relatively strict requirements to qualify for a conventional mortgage this can be an inexpensive way to borrow money to buy property if for example you took out a conventional mortgage to buy a home worth 500 000 had a 100 000 down payment that s 20 and a good credit score of 650 you might be able to get a conventional mortgage with a locked in rate of 5 50 this would equate to a monthly payment of around 2 271 on a 30 year loan just for the principal and interest payments conventional mortgage vs fha mortgagethe primary difference between conventional and fha mortgages is that fha loans are designed to make homeownership possible and easier for low to moderate income borrowers who may not otherwise be able to get financing because of a lack of or a poor credit history or because they have limited savings those who qualify for an fha loan require a lower down payment and the credit requirements aren t nearly as strict as other mortgage loans even those with credit scores below 580 may get financing these loans are not granted by the fha itself instead they are advanced by fha approved lenders in contrast to qualify for a conventional loan consumers typically must have stellar credit reports with no significant blemishes and credit scores of at least 620 conventional loan interest rates vary depending on the amount of the down payment the consumer s choice of mortgage product and current market conditions conventional vs conformingconventional loans are often erroneously referred to as conforming mortgages or loans while there is overlap the two are distinct categories a conforming mortgage is one whose underlying terms and conditions meet the funding criteria of fannie mae and freddie mac chief among those is a dollar limit set annually by the federal housing finance agency fhfa in most of the continental united states a loan must not exceed 766 550 in 2024 up from 726 200 in 2023 7so while all conforming loans are conventional not all conventional loans qualify as conforming for example a jumbo mortgage of 800 000 is a conventional mortgage but not a conforming mortgage because it surpasses the amount that would allow it to be backed by fannie mae or freddie mac at the end of fiscal year 2023 there were 7 5 million homeowners with fha insured mortgages 8 the secondary market for conventional mortgages is extremely large and liquid most conventional mortgages are packaged into pass through mortgage backed securities mbs which trade in a well established forward market known as the mortgage to be announced tba market many of these conventional pass through securities are further securitized into collateralized mortgage obligations cmos types of conventional mortgagesthere are several types of conventional mortgages and the terms used to refer to them can be confusing here are the most common types required documentation for a conventional mortgagein the years since the subprime mortgage meltdown in 2007 lenders have tightened the qualifications for loans but overall most of the basic requirements haven t changed 9 potential borrowers need to complete an official mortgage application and usually pay an application fee and then supply the lender with the necessary documents to perform an extensive check on their background credit history and current credit score no property is ever 100 financed in checking your assets and liabilities a lender is not only looking to see if you can afford your monthly mortgage payments which usually shouldn t exceed 35 of your gross income 10 the lender is also looking to see if you can handle a down payment on the property and if so how much along with other up front costs such as loan origination or underwriting fees broker fees and settlement or closing costs all of which can significantly drive up the cost of a mortgage among the items required are these documents will include but may not be limited to borrowers also need to be prepared with proof of any additional income such as alimony or bonuses you will need to present bank statements and investment account statements to prove that you have funds for the down payment and closing costs on the residence as well as cash reserves if you receive money from a friend or relative to assist with the down payment you will need gift letters which certify that these are not loans and have no required or obligatory repayment lenders today want to make sure they are loaning only to borrowers with a stable income your lender will want to see your pay stubs self employed borrowers will need to provide significant additional paperwork concerning their business and income your lender will need to copy your driver s license or state id card and will need your social security number and your signature allowing the lender to pull your credit report interest rates for conventional mortgagesconventional loan interest rates may be higher than those of government backed mortgages such as fha loans although these loans which usually mandate that borrowers pay mortgage insurance premiums may work out to be just as costly in the long run 11the interest rate carried by a conventional mortgage depends on several factors including the terms of the loan its length its size and whether the interest rate is fixed or adjustable as well as current economic or financial market conditions mortgage lenders set interest rates based on their expectations for future inflation the supply of and demand for mortgage backed securities also influences the rates a mortgage calculator can show you the impact of different rates on your monthly payment 