Buying a house is just exciting; choosing the mortgage can then be daunting. A conventional refinance loan is unlike FHA, VA, or USDA loans because it is not federally insured. They are, however, originated by bank institutions, credit unions, or online lenders. More flexible than other possible types of mortgage loans to buy a house, a conventional loan will often offer better rates and a down payment as low as 3%. Conventional refinance loans, on the other hand, are fit for those who need to lower their payments on an existing mortgage or desire to tap into home equity due to price appreciation.
What Is a Conventional Loan?
A conventional refinance loan is a loan that is not insured or guaranteed in whole or in part by any federal government agency. On the contrary, it is offered by private lenders who must follow guidelines set forth by Fannie Mae and Freddie Mac. NMLS-licensed loan officers of GoMortgage review applications to ensure that they meet federal guidelines and assist clients in choosing the loan type that best fits their financial goals. (A)
- The minimum credit score usually required is 620 or so.
- Down payments can be as low as 3%.
- Loan limits are $806,500 in most locations ($1,209,750 in high-cost locations).
Similar to conventional loans, which permit a down payment as low as 3%, private mortgage insurance (PMI) will be paid for all amounts under 20%. The conventional loan offered by GoMortgage is therefore very flexible and suits most buyers qualified by credit and income. For more than 25 years, GO Mortgage LLC has made buying and owning a home fast, easy, and efficient. (E)
Types of Conventional Loans
- Fixed-Rate Mortgage
Keep the same interest rate throughout your loan’s life. Stable monthly payments make it a favorite choice of homeowners.
- Adjustable Rate Mortgages
They offer lower initial interest rates that will change after a specified amount of time. This is good if the borrower intends to move or refinance before those rates begin to increase.
- Conforming Loan
Meeting all FHFA (Federal Housing Finance Agency) loan-size and credit requirements, it is qualified for purchase by Freddie Mac or Fannie Mae. According to Fannie Mae, conventional loans adhere to conforming loan limits and require a minimum credit score of 620. (EXP)
4. Nonconforming Loan
Does not meet FHFA rules. Jumbo loans are the most common.
How to Apply for a Conventional Loan: Step by Step
The conventional loan application appears to be complicated for many people, but the process can be easy to grasp if one approaches it in a stepwise fashion. Have you been seeking a conventional purchase loan to buy a new home or a conventional refinance loan to reduce your monthly payments? Here is what is involved:
- Assess Your Goals and Finances
It’s the primary step when making such an important decision: are you purchasing or refinancing? Check your credit score (generally above 620), debt-to-income ratio, and what you will deposit as a down payment. Use the GoMortgage refinance calculator to evaluate the amount.
- Gather Documents
This will make them adequate to speed up the process before applying. Have pay stubs, W-2s, tax returns, bank statements, and assets as evidence. For refinancing purposes, make sure you present your current mortgage statement.
- Get Pre-Qualified
Give preliminary financial information to a lender such as GO Mortgage. You will get an estimate of how much you can borrow. This process is rapid and performs a soft credit check.
- Apply for Pre-Approval
Provide full documentation for verification. The lender will pull your credit and verify your income. Getting a pre-approval letter on your offer helps sellers view you as a serious buyer.
- Select a Home or Your Refinance Type
Get pre-approvals for refi products (rate-term, cash-out, streamline) or pre-approval to shop for a home.
- Finalize the Loan Application
Complete the official mortgage application. Your lender will order an appraisal to verify the property value and initiate underwriting.
- Underwriting and Conditional Approval
The underwriter checks over your file and can ask for more documents. When all requirements are fulfilled, you will get “clear to close.”
- Closing Day
You will go over your Closing Disclosure, sign papers, and complete the loan. On purchases, you will take possession of your keys; on refinances, your previous mortgage is paid off.
Conventional vs Other Loan Types
| Loan Type | Backed By | Minimum Down Payment | Credit Score Requirement | Best For |
| Conventional | Private Lenders | 3% | 620+ | Buyers with strong credit or looking for larger loan amounts |
| FHA Loan | Federal Housing Admin | 3.5% | 580+ | Buyers with lower credit scores |
| VA Loan | Dept. of Veterans Affairs | 0% | Flexible | Veterans and active-duty service members |
| USDA Loan | Dept. of Agriculture | 0% | 640+ | Rural and suburban homebuyers |
FAQs
- Is it harder to qualify for a conventional loan?
The higher required credit scores may make conventional loans have stricter qualifications than government-backed loans.
- What credit score for a conventional loan?
Generally, lenders prefer a score of 620 FICO for a conventional mortgage; whereas an FHA loan can be issued with a score as low as 500, provided 10% down.
- Do I pay PMI forever?
Provided you are paying on time, if your loan balance falls to 78% of the original value of your home, your PMI will be dropped on your loan automatically.
- How to tell if a loan is FHA or conventional?
FHA mortgage insurance is required, although conventional mortgage insurance would not be found in the procedure unless the LTV exceeds 80%; whereas, conventional loans would not be affiliated or insured with the government as FHA loans are.
- Who are conventional loans best for?
They are best for borrowers with good credit who can make a minimum down payment of about 3%, if not more.
Conclusion
The conventional loan in US mortgage continues to be one of the most reliable and versatile home financing choices available to homebuyers. Whether you are submitting a conventional purchase loan application to purchase your first house or are looking for a conventional refinance loan to reduce payments, it is worth learning about the ways that this type of loan can help fulfil your financial aspirations.
With GO Mortgage, our experts are ready to make this process easy and assist you along the way. Get pre-qualified today and take the first step toward your dream home!
