Conventional Loans are for buyers with good credit, savings and the ability to put down a larger payment. With 20% down a borrower avoids Mortgage Insurance costs associated with other loans, therefore saving money. This is good for borrowers looking to purchase an investment property.
What is a Conventional Loan?
A conventional loan meets certain guidelines as set forth by Fannie Mae and Freddie Mac. The best-known of these guidelines is the size of the loan; in most counties in the United States, the current maximum size of a conventional loan is $417,000, though super-conforming loans with higher price limits are available in more expensive counties.
Jumbo loans are too large to meet the guidelines of a conforming loan. For example, if you are buying a home in a county in which the conforming loan limit is $417,000, and you are taking out a single mortgage for $500,000, you’ll need a jumbo loan.
As jumbo loans do not meet the standards of a conforming loan, they are more difficult to sell on the secondary market. Lenders are less confident in their ability to resell this type of mortgage, so they will offset their financial risk by charging the borrower a higher interest rate.