Summary

  • Conventional loans use Fannie Mae or Freddie Mac to establish guidelines for borrowers.
  • A conventional loan can be conforming or nonconforming and have either a fixed or adjustable rate.

Advantages

  • No mortgage insurance required (with 20%+ down payment)
  • No upfront mortgage insurance premium (UFMIP)
  • Great for purchases and refinances
  • Mortgage insurance is removed automatically as applicable
  • Lower cost than other loan products
  • Makes for a stronger purchase offer than FHA or VA
  • Monthly Mortgage insurance (if required) is less than that of an FHA loan

Disadvantages

  • Restrictions on gift funds for down payment and closing costs
  • Minimum credit score required
  • Generally requires larger down payments than federally insured loans
  • Requires private mortgage insurance (PMI) when the down payment falls below 20%.
  • Interest rates are typically higher than that of FHA or VA loans