What is a conventional loan? [Full overview in 2 minutes]

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A conventional loan is a mortgage loan product used to finance the purchase of residential real estate. It can be used to finance owner occupied occupied properties or investment properties. You're generally gonna see them being used on single family homes, multifamily homes with less than 4 units, or condos.

Unlike FHA, VA, or USDA, a conventional loan is not insured or guaranteed by any government agency. Therefore, their guidelines tend to be a little stricter when it comes to credit scores or debt to income ratio or housing ratios, which are used to qualify a borrower.

A minimum credit score generally is 620, but that's gonna vary by lender. Some lenders will require a higher credit score to be eligible for a conventional loan. I wanna point out that on a conventional loan, there's a common misconception that a borrower needs to have 20% down.

You do not need 20% down to get a conventional loan. However, please note that if you do put less than 20% down, you are gonna be required to carry what we call private mortgage insurance or PMI.

If you put 20% down, you won't have PMI. If you put less than 20 percent down, you will have it, and you'll have it until your loan to value reaches a certain amount. Now what are you required to put down for a conventional loan?

Well for a first time home buyer, you can put as little as 3% down. This is a great perk for a first time home buyer, but even if you're not a first time home buyer, buyer, this is the 2nd time you've bought a home or 3rd time, you can put as little as 5% down.

Now on investment properties, that's gonna vary, so you wanna ask your lender what they require as far as down payment for investment properties. Nonetheless, a conventional loan is the most common loan product.

If you have any other questions on conventional loans, please feel free to reach out to me. I'm always happy to help. Also, check out this comprehensive resource explaining conventional loans in more detail https://loanfully.com/glossary/conven...