Conventional Loan

Conventional Loan

A conventional loan is a type of mortgage that is not backed by any government agency, such as the Federal Housing Administration (FHA). These loans can feature either fixed or adjustable interest rates and typically require a down payment of 20% or more.

Since conventional loans lack government insurance, lenders assume a higher risk if the borrower is unable to repay the loan. As a result, homebuyers with lower credit scores may find it challenging to qualify for conventional loans, as lenders require more assurance that borrowers will not default on their mortgages.

For those who do not have a high credit score or cannot afford the substantial down payment associated with a conventional loan, FHA loans serve as a viable alternative. Because these loans are insured by a government agency, lenders can offer significantly lower down payment requirements and competitive interest rates, making homeownership more accessible for many borrowers.

Credit Requirements

The FHA sets credit requirements for government-backed home loans. For example, to use the 3.5% down payment option, you need a FICO score of at least 580.

Amortization

An amortized loan is repaid with regular payments of principal and interest. A schedule shows how each payment splits between the two over time.

Fannie Mae

Fannie Mae is a government agency that buys mortgages from lenders to help them reinvest. Its mission is to stimulate the U.S. mortgage market and increase affordable housing availability.

Obama Mortgage

The Home Affordable Refinance Program (HARP) was an initiative from the Obama administration that provided options to help homeowners based on their situations.

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