Breakdown of Conventional and Non-Conventional Loans (2024)

FAQs

What percentage of loans are conventional? ›

Conventional conforming mortgages were the most common mortgage type in Q4 of 2023, making up 44.8% of all originated mortgages, according to the Urban Institute. Conventional mortgages are available through different types of mortgage lenders, including banks, credit unions and online mortgage companies.

“Conventional” just means that the loan is not part of a specific government program. Conventional loans typically cost less than FHA loans but can be more difficult to get.

While a 20% down payment is often recommended, it's not always required. A lender will look at the big picture when evaluating your mortgage application. Depending on your specific situation, you can put down as little as 3% when taking out a conventional mortgage.

A non-conforming loan is simply any mortgage that doesn't conform to the requirements set forth by Fannie Mae and Freddie Mac. Non-conforming loans commonly include jumbo loans (those above Fannie Mae and Freddie Mac limits) and government-backed loans like VA loans, FHA loans or USDA loans.

Most conventional loans allow for a DTI ratio of no more than 45 percent, but some lenders will accept ratios as high as 50 percent if the borrower has compensating factors, such as a savings account with a balance equal to six months' worth of housing expenses.

In August 2019, 66% of loans were conventional, 18% were backed by the FHA, 10% were VA, and 2% were USDA. In August 2021, 73% of loans were conventional, 13% were FHA, 9% were VA, and 1% were USDA.

Higher Closing Costs

As noted above, conventional loans tend to have lower closing costs (and be cheaper in general) than government-backed options. However, the downside of conventional loans is that they don't offer as much flexibility to help you avoid paying those costs upfront.

Conventional loans can require less paperwork and can be obtained more quickly than government-insured loans. Mortgage lenders can approve conventional loans without the typical delays incurred with FHA or government-backed loans.

Conventional loan interest rates may be higher than government-backed mortgages, such as FHA loans, and you will need a higher credit score and down payment to qualify.

Conventional loan down payments start at just 3% for first-time home buyers. Or, you could pay 5%-10% out of pocket to lower your interest rate and payments. Putting down 20% or more gets you out of paying for PMI — but that doesn't mean it's the right choice for everyone.

How often do conventional loans fall through? ›

Relax — just not too much

You read earlier that 3.9 percent of residential property transactions fail. That means 96.1 percent succeed. And, by the time the closing table is in sight, your chances are already much better.

The minimum down payment requirement for a conventional loan is 3% of the loan amount. However, lenders may require borrowers with high DTI ratios or low credit scores to make a larger down payment. Even if it's not required, if you're able to make a higher down payment, you may want to consider doing so.

A conventional loan or mortgage is not backed by the government, whereas a non-conventional loan or mortgage is. Depending on your specific situation as a buyer, each of these mortgages will provide you with different advantages and disadvantages.

FHA loans and conventional loans are both issued by private lenders, but FHA loans are insured by the federal government, and conventional loans are not.

While most conventional and FHA loans require a minimum 3% to 3.5% down payment, there are unique options available for specific groups, such as veterans and rural home buyers with moderate to low incomes, that allow for zero down payments.

On average, PMI costs range between 0.22% to 2.25% of your mortgage. How much you pay depends on two main factors: Your total loan amount: As a general rule, PMI expenses are higher for larger mortgages. Your credit score: Lenders typically charge borrowers with high credit scores lower PMI percentages.

The first mortgage lien is taken with an 80% loan-to-value (LTV) ratio, meaning that it is 80% of the home's cost; the second mortgage lien has a 10% LTV ratio, and the borrower makes a 10% down payment. This arrangement can be contrasted with the traditional single mortgage with a down payment amount of 20%.

Anyone can apply for a conventional loan with 5% down; you don't need to be a first-time home buyer or have a low income to qualify. However, you must purchase a primary residence. If you're buying a vacation home or investment property, you'll need more than 5% down.

The Annual Report to Congress Regarding the Financial Status of the Federal Housing Administration Mutual Mortgage Insurance Fund for Fiscal Year 2023, found that, despite challenges in the housing market, FHA facilitated access to mortgage credit for more than 765,000 homebuyers and homeowners, including more than ...