Conventional loans are otherwise known as "conforming" and offer high loan limits vs FHA loans There are also established guidelines for borrower credit scores, income requirements and minimum down payments. For example, most conventional loans require somewhere between 3 percent and 20 percent down. Conventional loans can be conforming or nonconforming. Loans above the lending limits set by Fannie Mae and Freddie Mac are called nonconforming or jumbo loans. Conventional loans either have fixed or adjustable interest rates. Fixed interest rate loans have terms of 15 or 30 years. Shorter-term loans usually results in a lower interest rate. Adjustable-rate mortgages, or ARMs, fluctuate in relation to the rate of a standard financial index, such as the LIBOR. Monthly payments can go up or down accordingly. Conventional Loans may be Cheaper • If you plan on using a 20% down payment to avoid PMI. You may have no choice but to get conventional financing. FHA loans will require mortgage insurance regardless how much your down payment is. • If you have a 20% down and are seeking a 80% LTV loan-to-value mortgage. Then a conventional mortgage will be cheaper than FHA. Some Conventional Mortgage Benefits • Higher maximum loan limits • No up-front private mortgage insurance (PMI). • Flexible guidelines on the homes condition • PMI payments cancel when the LTV reaches 78% • NO PMI with 80% loan-to-value ratio • Mortgage insurance is less expensive (0.51% vs 0.85% with FHA) • 3% down payment for conventional 97% LTV loan FHA Loan Disadvantages • Lower maximum loan limits • MIP required for the life of the loan if a borrower puts down less than 10% • Mortgage insurance required even if putting 20% down • Can only purchase condominiums that are FHA approved. • Mortgage insurance monthly cost is higher • Comparing Credit Scores FHA vs Conventional • FHA Loan: 500-579 credit score (10% down payment) • FHA Loan: 580+ credit score (3.5% down payment) • Conventional Loan: 620+ credit score (5% – 20% down payment) • Conventional 97: 640+ credit score (3% down payment) ​Ask us about our 1% down program