If you’re a loan professional such as a loan officer or processor, there are many types of loans you’ll need to familiarize yourself with so you can best serve borrowers. It definitely gets confusing! The conventional loan (AKA conv loan) is just one of many types of loans available through most lending institutions. Here’s an overview on some of the basics of qualifying for conventional loans you should definitely know!

What Is a Conventional Loan?

Conventional loans are usually not guaranteed by a government agency. That means if the borrower is unable to pay back what they owe for their conventional loan, the government will not cover the debt on the borrower’s behalf. This makes them inherently riskier for lending institutions. Because of this, lenders make them more difficult for borrowers to obtain, often requiring applicants to have a credit score of 660 or higher.

Don’t let the term “conventional” fool you. These loans also offer more flexible options for the length of the loan since they don’t have to adhere to certain government guidelines.

There are two different types of loans that fall under the conventional category: conforming and non-conforming loans. If the loan falls under the guidelines set by Fannie Mae and Freddie Mac, the loan is considered conforming. But if it doesn’t, it’s non-conforming. For example, an especially large loan may fall under the non-conforming category. This is a jumbo loan.

Who Should Get a Conventional Loan?

Great credit is the number-one thing that you should look for when determining if a particular applicant should get a conventional loan. Not only does having a higher credit score make it easier for a borrower to qualify for a conventional loan, but it will also ensure they get the best rate possible. A borrower who has a credit score of 740 or above will be able to enjoy the lowest interest rates.

The down payment a borrower is expected to make will depend on the specific lender as well as their credit score. While some lenders may allow a down payment that’s as low as 3% on a conventional loan (especially if the borrower has exceptional credit), others will require something higher. Because of this, if you have an applicant who can’t afford much of a down payment, a conv loan won’t always be in their best interest. Of course, making a more sizable down payment will also reduce a borrower’s interest rates.

Although qualifying for a conventional loan can be a bit of a challenge, if a borrower does qualify for one, they will have more options on the type of property they can purchase. For example, a conventional loan may be the best bet for a buyer who’s on the market for a second home.

Continue Your Loan Education with Mortgage Loan Training

If you’d like more in-depth information about the different types of loans available so you can guide borrowers, it’s time to sign up for a course with Mortgage Loan Training! We offer courses for loan processors and officers so you can learn about who should get a conventional loan and so much more! For more information, get in touch with Stacey Sandlin today!