A conventional loan is a type of mortgage that is not insured or guaranteed by the government, unlike FHA, VA, or USDA loans. Instead, conventional loans are backed by private lenders and investors, such as banks, credit unions, and mortgage companies. This year, the conventional loan amount limit has been set at $726,200 in most areas across the United States.
Requirements for a conventional loan may vary depending on the lender and the borrower's financial situation. However, some common requirements include:
- Good credit score: Conventional loans typically require a minimum credit score of 620 or higher, although some lenders may require a higher score.
- Stable income and employment: Borrowers must have a stable income and employment history to demonstrate their ability to repay the loan.
- Debt-to-income ratio: Lenders will also look at the borrower's debt-to-income ratio, which is the amount of debt they have compared to their income. Typically, the maximum debt-to-income ratio for a conventional loan is 43%.
- Down payment: Conventional loans typically require a down payment of at least 3% to 20% of the purchase price, depending on the lender and the borrower's creditworthiness.
- Property appraisal: The property being purchased with a conventional loan must be appraised by a licensed appraiser to ensure that its value is sufficient to cover the loan amount.