Planning to buy a home in Florida but don't have a large amount of cash on hand? A conventional loan might be the right fit. Here's a clear look at how they work, what they require, and what makes them different from government-backed options.
What's a Conventional Loan?
A conventional loan is a mortgage that isn't insured or guaranteed by the federal government. Instead, it's backed by private lenders like banks or credit unions. Because the government isn't absorbing the risk, lenders set stricter qualifying standards than they do for FHA or VA loans. That typically means a higher credit score requirement and a larger down payment. In exchange, you often get more flexibility in loan terms and the ability to cancel private mortgage insurance once you've built enough equity, which you can't do with most FHA loans.
Types of Conventional Loans
Conventional loans split into two categories: conforming and non-conforming. Conforming loans meet the guidelines set by Fannie Mae and Freddie Mac, the government-sponsored entities that buy and securitize mortgages. Non-conforming loans, commonly called jumbo loans, exceed those loan limits and typically come with stricter requirements.
Benefits of Conventional Loans
One of the biggest advantages of a conventional loan is flexibility. You can use it to purchase a primary residence, a second home, or an investment property, which government-backed programs often don't allow. Conventional loans also come with more options for loan terms and repayment structures.
The other key advantage: once you've built enough equity in your home, you can cancel private mortgage insurance (PMI). With other loan types, like FHA loans, PMI can be required for the full loan term. Canceling PMI when you hit 20% equity reduces your monthly payment and saves money over time.
How to Qualify for a Conventional Loan
Every situation is different. Generally, you'll need a credit score of at least 620 and a down payment of at least 3%. A higher score and larger down payment typically get you better rates and loan terms. You'll also need to document your income and employment. If you're not sure where your file stands, give us a call or drop us a message. We'll figure out the best path forward for your situation.
