Conventional loans are a popular mortgage option that offer competitive interest rates and flexible terms for borrowers with good credit and financial stability.
When it comes to securing a home loan, there are many options available. One popular option is a conventional loan, which has a variety of benefits over other types of loans. In this post, we'll break down everything you need to know about conventional loans, including the definition, qualification requirements, and advantages.
Conventional loans are home loans that are not guaranteed or insured by the federal government. In contrast, government-backed loans such as FHA, VA, and USDA loans are insured by the government, essentially protecting the lender from borrower default. Conventional loans are typically offered by private lenders such as banks and mortgage companies.
Conventional loans are a popular choice among homebuyers for several reasons. Firstly, they typically have lower interest rates than government-backed loans, which means lower monthly payments. Moreover, they offer greater flexibility in terms of loan types including fixed and adjustable-rate options.
To qualify for a conventional loan, a borrower must have good credit. This typically means a credit score of at least 620. However, some lenders may require a higher score depending on the specifics of your loan application. Having a higher credit score can impact your interest rate and overall loan terms.
In addition to credit score requirements, borrowers must have a stable income and employment history to qualify for a conventional loan. Lenders will also look at your debt-to-income ratio to determine if you can afford the monthly payments.
One of the advantages of conventional loans is the option to choose between fixed and adjustable-rate mortgages. A fixed-rate mortgage guarantees your interest rate will remain the same for the life of the loan. An adjustable-rate mortgage, on the other hand, has an interest rate that can change over time. Depending on your budget and financial goals, one option may be more suitable than another.
Conventional loans typically have higher loan limits than government-backed loans. This can make them a better option for homebuyers looking to purchase a higher-priced property. The specific loan limit will depend on the county in which the property is located.
One way to offset the cost of a conventional loan is to make a higher down payment. By putting more money down upfront, you can lower your monthly mortgage payment and potentially qualify for a lower interest rate. In addition, having a higher down payment can make you a more attractive borrower to lenders.
If your down payment is less than 20%, you will likely be required to pay for private mortgage insurance (PMI). Fortunately, there are several PMI options available for conventional loans. For example, a borrower could opt to pay a one-time premium at the time of borrowing or pay a monthly premium in addition to their mortgage payment.
Conventional loans can be either conforming or non-conforming. Conforming loans follow guidelines set by Fannie Mae and Freddie Mac, such as maximum loan amounts, and specific qualification requirements.Expanded loan limits, non-standard credit criteria, and specialty loan terms characterizes non-conforming loans.
To apply for a conventional loan, you'll need to provide a range of financial information, including income verification, employment history, and a credit report. Once submitted, the lender will review your application and determine if you qualify for a loan.
Once your application is approved, you'll enter the closing process. During this time, both you and the lender will review and sign all of the necessary paperwork. Afterwards, the loan will be funded, and you will take ownership of the property.
In summary, conventional loans offer flexibility in terms of loan types, lower interest rates, and are not backed by the government. While they do require higher credit scores and down payments, they are a great option for borrowers looking to purchase higher-priced properties. For more information on conventional loans or to see if you qualify, contact FHA loans Pro today.