A conventional loan underwritten and originated by a private lending agency, but is insured by Fannie Mae or Freddie Mac, the government sponsored enterprises that regulate the mortgage lending industry. This federal backing lessens the lender’s risk in extending credit; however, in exchange for this certainty the lending institution must conform to agency lending guidelines – hence why these are often described as “conforming” loans. Interest rates on these loans are traditionally much lower than uninsured alternatives (sometimes referred to as “Hard Money”).
620 is the minimum FICO score required for a conventional loan, and 5% is the standard down payment; however, a conventional loan product does exist – offered by Fannie Mae and Freddie Mac – which, on a case-by-case basis, allows for as little as 3% down. In all cases, putting down less than 20% on your home purchase will require that you pay monthly private mortgage insurance premiums (PMI) until you reach 20% equity in your home. This loan type is ideal for borrowers with 5% down or more, and who have ‘fair’ to ‘excellent’ credit.