Conventional mortgages are a great choice if you plan on being in your home for at least seven years and you have a good credit history.  With a fixed rate loan, your rate will stay the same for the entire loan term.  The interest rates are competitive and there is a wide range of options that can fit most circumstances.  While these mortgages are not considered government loans like FHA or VA, they are typically purchased by one of two government sponsored entities - Fannie Mae or Freddie Mac and are underwritten to the standards of those companies.  

These loans may be for 10, 15, 20, 25, or 30 years.  The down payment may be as low as 3% of the purchase price.  The maximum loan amount is $806,500 as of January 1, 2025.  Mortgage insurance is required if the loan-to-value is over 80%.

 

Benefits of a Conventional Mortgage include:

•  Competitive Fixed Interest Rates - These loans generally are for borrowers who have sufficient income, above average credit and who have a down payment.  Since these factors reduce the risk that borrowers won't pay back the loan, the interest rates are usually very competitive.  In addition, fixed interest rate loans free you from any concern over payment increases caused when interest rates rise as can happen with an Adjustable Rate Loan.

•  Easier to Compare - Lenders use standard guidelines provided by Fannie Mae and Freddie Mac, so it's easier to compare these loans based on things like interest rate and closing costs.

•  Quicker Turnaround - Even though conventional mortgages may have more strict guidelines than government loans,  usually less supporting documentation is required to complete the loan process. 

•  No Income Restrictions and Limited Property Requirements - Government loans may have maximum income requirements, restrictions on where the property is located, and property condition.   These requirements do not typically apply to conventional mortgages.     

 

Other Considerations:

There are many benefits to obtaining a conventional mortgage loan, but there are also some things to keep in mind.

•  Higher Qualification Standards - These loans are generally considered to have tighter standards to qualify.  If you have a lower credit score, variable income, or little or no down payment, there may be better options with a government loan.

•  Mortgage Insurance - Since these loans are not guaranteed by the government, private mortgage insurance is required for all loans with the loan to value over 80%.  The cost of mortgage insurance can significantly increase your monthly payment.  But once your loan to value is less than 78%, the mortgage insurance can be cancelled and removed from your payment.