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- Written by Eddie
Pros and Cons of Conventional Loans: Is It the Best Choice for You?
When buying a home, one of the most common mortgage options is a conventional loan. It offers lower interest rates, simpler repayment terms, and no upfront mortgage insurance—but also stricter credit and income requirements. If you’re struggling to decide whether a conventional loan is right for you, here’s a closer look at the advantages and disadvantages to weigh.
Benefits of Conventional Loans
- Lower Interest Rates
Borrowers with a 700+ credit score qualify for better rates compared to those who use FHA or other government-sponsored loans. - Flexible Loan Terms
Choose between 10, 15, 20, or 30-year repayment terms to fit your budget and financial goals. - No Mortgage Insurance with 20% Down
Unlike FHA loans, which feature Mortgage Insurance Premium (MIP) for the life of the loan, conventional borrowers can avoid Private Mortgage Insurance (PMI) with a 20% down payment. - Larger Loan Amounts
Conventional loans allow for larger loan amounts than FHA loans. The FHFA has increased the 2025 conforming loan limit. Check the FHFA website for current amounts. - More Property Options
Conventional loans can be utilized to purchase primary residences, second homes, vacation homes, and investment properties, but FHA loans can be used only for primary residences.
Cons of Conventional Loans
- Stricter Credit Requirements
620 is the minimum credit score required, but applicants with scores below 700 can expect higher interest rates or stricter approval criteria. - Higher Down Payment for Some Buyers
While there are programs available that allow for a 3% down payment, most borrowers will need to put down at least 5–20% down, which can be a stretch financially. - Private Mortgage Insurance (PMI)
You’ll be required to pay PMI if you put down less than 20% down payment until you reach 20% equity. - Debt-to-Income Ratio (DTI) Limits
Lenders typically require a DTI of below 43%, which means your overall monthly debt payments should not exceed 43% of your gross monthly income.
See What You Qualify For
Is a Conventional Loan Right for You?
A conventional loan is ideal for buyers with good credit, a steady income, and who can manage a larger down payment. If you need lower down payment options and more lenient credit qualifying, you may want to consider an FHA loan.
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