A conventional loan is a non-government insured loan. Government Sponsored Entity (GSE) loans are FHA, USDA, and VA loans and are not considered conventional loans.  Conventional loans can be conforming and non-conforming loans, fixed or adjustable rates, and amortized over 10-30 year periods.

Conforming loans
These loans conform to Fannie Mae and Freddie Mac guidelines giving banks greater options to administer mortgages to consumers. Maximum loan amounts for King and Pierce County for one unit purchase is $726,525. For all other counties, the maximum is $484,350.

Non-Conforming loans
If the loan value exceeds the maximum allowable limits, they are considered Jumbo loans. These loans normally carry a slightly higher rate for those with excellent credit and those with marginal credit could see the rate 1-2 points higher than average rates. Loans designed for flippers such as interest only loans, are non-conforming as well.

 

Advantages

Down payment can be as low as 3%

down payment can be gifted with certain programs

Excellent option for high credit score borrowers

Less paperwork than GSE

Perception of less appraisal issues

Competitive interest rates

Can be used for owner or non-owner occupied

No monthly mortgage insurance if down payment is 20% or more

No upfront mortgage insurance

Monthly mortgage insurance is lower than FHA with good credit scores

Optional mortgage insurance choices

Mortgage insurance can be removed from loan with 20% equity

A spouse can be dropped from loan with credit issues

Appraisal may be waived

Lower wait period or none at all for purchasing flipped properties

 

Disadvantages

Debt to Income ratios or qualifying ratios are more conservative

Interest rates with excellent credit scores are slightly higher

Borrowers with lower credit scores will have much higher interest rates and costs

Bankruptcies and short sales have longer wait periods

Must pay off all collections and judgements