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Conventional Loans

Conventional loans are the typical loans people get for a mortgage. 


They are not backed by the federal government but they are regulated by the Federal Housing Finance Agency (FHFA). 


For 2022, the conforming loan limits are $647,200 in most areas and $970,800 in more expensive areas.


Pros of conventional loans

Can be used for a primary home, second home or investment property

Overall borrowing costs tend to be lower than other types of mortgages, even if interest rates are slightly higher

Can ask your lender to cancel private mortgage insurance (PMI) once you’ve reached 20 percent equity, or refinance to remove it

Can pay as little as 3 percent down on loans backed by Fannie Mae or Freddie Mac

Sellers can contribute to closing costs


Cons of conventional loans

Minimum FICO score of 620 or higher often required (the same applies for refinancing)

Higher down payment than some government loans

Must have a debt-to-income (DTI) ratio of no more than 43 percent (50 percent in some instances)

Likely need to pay PMI if your down payment is less than 20 percent of the sales price

Significant documentation required to verify income, assets, down payment and employment


Who should get a conventional loan?

If you have a strong credit score and can afford to make a decent down payment, a conventional mortgage is probably your best pick. The 30-year, fixed-rate conventional mortgage is the most popular choice for homebuyers.

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