What is a good debt-to-income ratio for a mortgage?
Debt-to-income ratio is the portion of your income that goes toward paying debts. DTI affects how much house you can afford. Learn how to calculate.
Diana Flowers
These home loans are not insured by the government
A conventional mortgage is a homebuying loan you get entirely through a private lender. It’s not backed or offered by a government agency like the Federal Housing Administration, Department of Veterans Affairs or Department of Agriculture.
Instead, banks, credit unions and private mortgage lenders offer this kind of home loan on their own. One thing to keep in mind with these mortgages is that they may come with stricter lending requirements since they don’t have government backing.
Fannie Mae and Freddie Mac — two government-sponsored enterprises — do guarantee many conventional mortgages, known as conforming mortgages. Conforming loans meet guidelines set by the Federal Housing Finance Agency and the two GSEs, which back most mortgages in the U.S.
Overall, government-backed loans are less risky for lenders than conventional mortgages because the government guarantees them. As a result, borrowers may have an easier time qualifying. They tend to have lower requirements for credit score, debt-to-income ratio and down payments. Government-backed mortgages are designed for specific purposes, and they don’t fit every borrower. Government-backed loans include:
Conforming loans are the most common type of home loan, according to the Consumer Financial Protection Bureau.
Conventional loans may have stricter requirements than government-insured loans, but the borrower doesn't have to fit a specific demographic or live in a certain area.
Conventional loans tend to cost less than government-backed loans, with lower interest rates for those with high credit scores.
There are several types of conventional mortgages:
A conventional loan can be either conforming or nonconforming, depending on whether it meets FHFA, Fannie Mae and Freddie Mac requirements.
In general, conventional mortgages have fewer restrictions than government-backed loans — even if some of the requirements are stricter for borrowers. Lenders have more flexibility with conventional loans because they set their own eligibility standards.
Conventional mortgages offer competitive rates and low down payment options, but they generally require higher credit scores and a better debt-to-income ratio to qualify than government-backed loans do. This is because the government isn’t insuring the loan in case of a borrower default.
Requirements differ slightly by lender for conventional mortgages. However, most conventional mortgage lenders have these eligibility standards:
A conventional mortgage is the most common type of mortgage in the industry. If you have good credit, low debts and a healthy income, and you don’t meet requirements for special government loans, a conventional mortgage is often a good choice.
This type of loan has flexibility with loan amounts, down payments, term lengths and interest rates. Conversely, if you have poor credit or a lower income, or you meet the requirements for a VA or USDA loan, you may want to compare conventional and government loan offers.
Debt-to-income ratio is the portion of your income that goes toward paying debts. DTI affects how much house you can afford. Learn how to calculate.
Diana Flowers
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