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Conventional Mortgages

The term “conventional mortgage” typically refers to those mortgages that follow specific underwriting criteria and have limits to the loan amount.

Requirements and Guidelines for a Conventional Mortgage

Numerous underwriting guidelines need to be followed with a conventional mortgage.  Typically, Fannie Mae and Freddie Mac set the requirements. Lenders can then add their own guidelines, referred to as “overlays,” which usually makes a specific rule more stringent.

The most common guidelines call for the income, assets, and credit to be reviewed and verified. For a conventional mortgage, the borrower usually needs to have a credit score of at least 620 and the monthly mortgage payment should not exceed 33 percent of the borrower’s income. An appraisal of the property must be also be conducted. Once all the information is gathered, an underwriter reviews the data contained in the mortgage application, compares everything to the guidelines, and renders a decision on the file.

Conventional mortgage loan limits will vary by the number of units in the property (1, 2, 3, or 4 unit dwellings). The maximum allowable loan amount increases as the number of units go up. For example, the maximum loan amount for a conventional mortgage for a single family home is $417,000. “High balance” or “jumbo” mortgages are two terms often used to describe loan amounts that exceed the conventional limits but may still use conventional underwriting guidelines.