A conventional loan is a type of loan that doesn't have government backing or insurance, unlike FHA, VA, and USDA loans, which are insured by the government. Conventional mortgage loans, whether conforming or non-conforming, usually require a slightly larger down payment than some government loans. However, conventional loans offer more flexibility and fewer restrictions for borrowers, especially those borrowers with good credit and steady income.

Eligibility Requirements

To qualify for a conventional loan, you generally need a good credit score (usually above 620), a stable employment history, and a manageable debt-to-income ratio. Other factors, such as your income, assets, and the property's appraisal value, will also be considered. Specific requirements may vary, so it's essential to consult with a mortgage professional to determine your eligibility.

Conventional vs Government-backed loans

Conventional loans can be an excellent choice for many homebuyers. They often offer competitive interest rates, term flexibility, and the ability to finance various property types. However, whether a conventional loan is the best option depends on your financial situation, credit history, and preferences. It's always a good idea to explore multiple loan options and consult a mortgage professional to determine the best fit for your needs.

FHA home loans are mortgage loans that are insured against default by the Federal Housing Administration (FHA). FHA loans are available for single family and multifamily homes. These home loans allow banks to continuously issue loans without much risk or capital requirements. The FHA doesn't issue loans or set interest rates, it just guarantees against default.

FHA loans allow individuals who may not qualify for a conventional mortgage obtain a loan, especially first time home buyers. These loans offer low minimum down payments, reasonable credit expectations, and flexible income requirements.

In 1934, the Federal Housing Administration (FHA) was established to improve housing standards and to provide an adequate home financing system with mortgage insurance. Now families that may have otherwise been excluded from the housing market could finally buy their dream home.

FHA does not make home loans, it insures a loan; should a homebuyer default, the lender is paid from the insurance fund.

• Buy a house with as little as 3.5% down.
  
• Ideal for the first-time homebuyers unable to make larger down payments.
  
• The right mortgage solution for those who may not qualify for a conventional loan.
  
• Down payment assistance programs can be added to a FHA Loan for additional down payment and/or closing cost savings.
  

Your loan approval depends 100% on the documentation that you provide at the time of application. You will need to give accurate information on:

Employment

• Complete Income Tax Returns for past 2-years
  
• W-2 & 1099 Statements for past 2-years
  
• Pay-Check Stubs for past 2-months
  
• Self-Employed Income Tax Returns and YTD Profit & Loss Statements for past 3-years for self-employed borrowers
  

Savings

• Complete bank statements for all accounts for past 3-months
  
• Recent account statements for retirement, 401k, Mutual Funds, Money Market, Stocks, etc.
  

Credit

• Recent bills & statements indicating account numbers and minimum payments
  
• Landlord's name, address, telephone number, or 12- months cancelled rent checks
  
• Recent utility bills to supplement thin credit
  
• Bankruptcy & Discharge Papers if applicable
  
• 12-months cancelled checks written by someone you co-signed for to get a mortgage, car, or credit card, this indicates that you are not the one making the payments.
  

Personal

• Drivers License
  
• Social Security Card
  
• Any Divorce, Palimony or Alimony or Child Support papers
  
• Green Card or Work Permit if applicable
  
• Any homeownership papers
  

Refinancing or Own Rental Property

• Note & Deed from any Current Loan
  
• Property Tax Bill
  
• Hazard Homeowners Insurance Policy
  
• A Payment Coupon for Current Mortgage
  
• Rental Agreements for a Multi-Unit Property
  

The main difference between a FHA Loan and a Conventional Home Loan is that a FHA loan requires a lower down payment, and the credit qualifying criteria for a borrower is not as strict. This allows those without a credit history, or with minor credit problems to buy a home. FHA requires a reasonable explanation of any derogatory items, but will use common sense credit underwriting. Some borrowers, with extenuating circumstances surrounding bankruptcy discharged 3-years ago, can work around past credit problems. However, conventional financing relies heavily upon credit scoring, a rating given by a credit bureau such as Experian, Trans-Union or Equifax. If your score is below the minimum standard, you may not qualify.

The VA Loan provides veterans with a federally guaranteed home loan which requires no down payment. This program was designed to provide housing and assistance for veterans and their families.

The Veterans Administration provides insurance to lenders in the case that you default on a loan. Because the mortgage is guaranteed, lenders will offer a lower interest rate and terms than a conventional home loan. VA home loans are available in all 50 states. A VA loan may also have reduced closing costs and no prepayment penalties.

Additionally there are services that may be offered to veterans in danger of defaulting on their loans. VA home loans are available to military personal that have either served 181 days during peacetime, 90 days during war, or a spouse of serviceman either killed or missing in action.

The Veteran Administration's Loan originated in 1944 through the Servicemen's Readjustment Act; also know as the GI Bill. It was signed into law by President Franklin D. Roosevelt and was designed to provide Veterans with a federally-guaranteed home loan with no down payment. VA loans are made by private lenders like banks, savings & loans, and mortgage companies to eligible Veterans for homes to live in. The lender is protected against loss if the loan defaults. Depending on the program option, the loan may or may not default.

Wartime/Conflict Veterans

• Veterans who were NOT Dishonorably Discharged, and served at least 90 days
  
• World War II – September 16, 1940 to July 25, 1947
  
• Korean Conflict – June 27, 1950 to January 31, 1955
  
• Vietnam Era – August 5, 1964 to May 7, 1975
  
• Persian Gulf War - Check with the Veterans Administration Office
  
• Afghanistan & Iraq – Check with the Veterans Administration Office
  
• Veterans Administration website www.va.gov
  

Peacetime Service

At least 181 days of continuous active duty with no dishonorable discharge. If you were discharged earlier due to a service-related disability you should contact your Regional VA Office for eligibility verification.

• July 26, 1947 to June 26, 1950
  
• February 1, 1955 to August 4, 1964, or May 8, 1975 to September 7, 1980 (Enlisted), or to October 16, 1981 (Officer)
  
• Enlisted Veterans whose service began after September 7, 1980, or officers who service began after October 16, 1981, must have completed 24-months of continuous active duty and been honorably discharged
  

Reserves and National Guard

• Certain U.S. Citizens who served in the Armed Forces of a government allied with the United States during World War II.
  
• Surviving spouse of an eligible Veteran who died resulting from service, and has not remarried.
  
• The spouse of an Armed Forces member who served Active Duty, and was listed as a POW or MIA for more than 90-days.
  

A VA home loan must be used to finance your personal residence within the United States and its territories. You have choices for the type of home you purchase:

• Existing Single-Family Home
  
• Townhouse or Condominium in a VA-Approved Project
  
• New Construction Residence
  
• Manufactured Home or Lot
  
• Home Refinances and Certain Types of Home Improvements
  

• 100% Financing & No Down Payment Loans
  
• No Private Mortgage (PMI)
  
• No Penalties for Prepaying the Loan
  
• Competitive Interest Rates
  
• Qualification is Easier than a Conventional Loan
  
• Sellers Pay Some of the Closing Costs
  
• Can be combined with additional down payment assistance to reduce closing costs
  

VA Form 26-1880

Yes, your eligibility is reusable depending on the circumstance. If you have paid-off your prior VA Loan, and disposed the property, you can have your eligibility restored again. Also, on a 1-time basis, you may have your eligibility restored if your prior VA Loan has been paid-off, but you still own the property. Either way, the Veteran must send the Veterans Administration a completed VA Form 16-1880 to the VA Eligibility Center. To prevent delays in processing, it's advisable to include evidence that the prior loan has been fully paid, and if applicable, the property was disposed. A paid-in-full statement from the former lender or a copy of the HUD-1 settlement statement must be submitted.

A jumbo loan is a mortgage used to finance properties that are too expensive for a conventional conforming loan. The maximum amount for a conforming loan is $766,550 in most counties, as determined by the Federal Housing Finance Agency (FHFA). Homes that exceed the local conforming loan limit require a jumbo loan.

Also called non-conforming conventional mortgages, jumbo loans are considered riskier for lenders because these loans can't be guaranteed by Fannie and Freddie, meaning the lender is not protected from losses if a borrower defaults. Jumbo loans are typically available with either a fixed interest rate or an adjustable rate, and they come with a variety of terms.