Conventional Loans: Everything First-Time Homebuyers Need to Know About Conventional Loans

Buying your first home is a major life milestone, and understanding your mortgage options is key to making smart financial decisions. One of the most common choices for first-time homebuyers is a Conventional Loan. Here’s everything you need to know about this popular loan type in simple, easy-to-understand language.

What is a Conventional Loan?

A Conventional Loan is a mortgage that is not backed by the government. Instead, it follows guidelines set by Fannie Mae and Freddie Mac, which are government-sponsored enterprises but not direct government programs. Because there is no government insurance, lenders typically have stricter requirements compared to FHA loans.

Key Benefits of a Conventional Loan

• Lower Long-Term Costs: No upfront mortgage insurance and you can cancel private mortgage insurance (PMI) once you reach 20% equity.

• Flexible Loan Amounts: Higher loan limits than FHA in many areas.

• Better for Strong Credit: If you have a good credit score, you may qualify for very low interest rates.

• More Property Types Allowed: You can use a conventional loan for primary residences, second homes, and investment properties.

Conventional Loan Requirements

• Credit Score: Typically a minimum of 620, but better rates with 740+

• Debt-to-Income Ratio: Preferably 36% or lower, but some lenders may allow up to 45%

• Down Payment: As low as 3% for first-time buyers, though 5%-20% is more common

• Employment & Income: Steady employment and verifiable income required

Property Requirements for Conventional Loans

• The home must meet basic safety and habitability standards.

• The property type can be:

  • Single-family home

  • Condo

  • Townhouse

  • 2-4 unit multi-family (for investment or occupancy)

• Appraisal required to confirm value and condition.

Private Mortgage Insurance (PMI)

• Required if you put down less than 20%

• Can be removed once you reach 20% equity—unlike FHA which requires insurance for the life of the loan unless refinanced

• PMI costs vary based on credit score and down payment size

Steps to Getting a Conventional Loan

1. Check Your Credit: Strong credit will save you money.

2. Save for Down Payment & Closing Costs: The more you put down, the less you pay in PMI.

3. Get Pre-Approved: This shows sellers you’re a serious buyer.

4. Find a Home: Shop with your budget in mind.

5. Loan Processing: Appraisal, underwriting, and closing.

   
   

Additional Important Information First-Time Buyers Should Know:

• Loan Limits: In most areas for 2024, the limit is $766,550 for a single-family home; high-cost areas have higher limits.

• Interest Rates Depend on Credit: The higher your score, the lower your rate.

• No Upfront Mortgage Insurance: Unlike FHA, no big insurance fee at the start.

• PMI is Temporary: You can eliminate it when you build equity.

• Investment Properties Eligible: You can use this loan for second homes or rental properties.

• Refinancing Options: You can refinance to lower rates or change loan terms.

• Fixed or Adjustable Rates: Choose between stable payments or lower initial rates.

Quick Conventional Loan Snapshot:

Final Thoughts

A Conventional Loan is a smart choice for buyers with solid credit, steady income, and a desire to avoid long-term mortgage insurance. While the upfront requirements may be stricter than FHA loans, the long-term savings and flexibility can make it worthwhile.

If you’re exploring homeownership in Atlanta or nearby areas, I’m here to help you compare your options and guide you through the process.

Contact Kereen HenryLuxury Associate Broker | Keller Williams404-210-1674 | www.kereenhenry.com