For this blog series, we’ll be explaining what the Conventional Loan program is, it’s main goals, and how to apply. This is going to be a four part series, as we want to make sure you have all of the information on this specific loan program! Just like with the USDA Loan program, we’ll break this down into parts. 

What is the Conventional Loan Program?

The Conventional Loan Program is the most commonly used loan program, and probably the one you’ve already heard the most about. The Conventional Loan Program is a standard loan program that has requirements that change every year in accordance to Fannie Mae ( Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) mortgage guidelines.

Unlike USDA and FHA Loan programs, The Conventional Loan Program is not guaranteed or backed by any government entities. These loan types are instead provided by lenders or banks directly, or guaranteed through the two government-sponsored enterprises (also known as GSE) Fannie Mae and Freddie Mac.

The Conventional Mortgage Loan Program has a bit more freedom in terms of the loan process and getting to the closing table than other programs, but has more restrictions and higher threshold requirements to merit using it over other programs. Because of these qualifications, the Conventional Loan option is one of the more popular ones!

If a borrower comes to the table with a high credit score and willing to put down at least 20% of the down-payment, the Conventional Loan Program is probably the most cost efficient loan type. This is due to being able to forego fees that other loan programs have, such as private mortgage insurance premiums.

Why Was the Conventional Loan Program Created?

The Conventional Loan Program was created originally as the default home loan program for buyers. This program allows borrowers to buy homes with more favorable conditions in exchange for a higher requirement to qualify.

Back in the day, in order to qualify for a loan, the borrower had to put down 50% as a down payment, and pay the home down on an amortization schedule of 5 years. Conventional loan programs made this the switch to requiring a 20% down payment for awhile as well.

Before the housing market bubble burst, there were all kinds of interesting program types. For example, there were mortgage loans that covered 100% of the cost of the home if you met the requirements for a Conventional Loan. However, those have been removed to protect both banks and borrowers.

The Conventional Loan Program is  mostly known for being the best program for borrowers willing to bring at least 20% to the table with a great credit score. As mentioned before, you can be approved for loans by bringing a down payment as low as 3%. However, it’s the most cost efficient to bring a 20% down payment to the table and an excellent credit score to get the most bang for your buck.

For the next part, we’ll be talking about Eligibility Requirements and borrower categories.