Conventional Loans – Pros & Cons

A conventional loan is the classic choice for homebuyers, often offering the best interest rates and flexibility. But is it the right fit for you? Let’s break it down.

Pros:

✅ Lower Overall Costs – No upfront mortgage insurance fees like FHA loans, and PMI can be removed once you reach 20% equity.

✅ Flexible Loan Terms – Choose from 10, 15, 20, or 30-year fixed-rate options, or even adjustable-rate mortgages (ARMs).

✅ Higher Loan Limits – Ideal for those looking at homes above FHA limits but still within conventional conforming loan caps.

✅ No Property Restrictions – Unlike USDA loans, you’re not limited to a specific area.

Cons:

❌ Stricter Credit Requirements – Typically, you’ll need a credit score of 620 or higher to qualify, and the best rates go to those above 740.

❌ Larger Down Payment May Be Required – While some conventional loans allow as little as 3% down, putting down less than 20% means paying for private mortgage insurance (PMI) until you reach enough equity.

❌ Higher Debt-to-Income (DTI) Sensitivity – Lenders scrutinize your DTI ratio more closely compared to government-backed loans.

Is a Conventional Loan Right for You?

If you have strong credit, a stable income, and at least some savings for a down payment, a conventional loan is likely a great option. It offers long-term cost savings and flexibility, making it a solid choice for many borrowers. But if your credit or down payment is on the lower side, exploring FHA or other alternatives may be a better move.

Still not sure? A mortgage broker (like me!) can help guide you through your options and find the best loan for your situation.