What Is a Conventional Mortgage Loan
What Is a Conventional Mortgage Loan?
If you are looking for a loan, you must be confused about all the available options. Conventional loan may be the perfect choice for you because you can obtain it quickly, and the process is quite smooth compared to other types of loans.
A conventional mortgage is not insured by the federal government and is, in fact, offered by a bank. Since it is not insured by the government, the loan is considered a little risky and has a number of requirements that the borrower has to fulfill. These requirements generally include high down payment and a low debt to income ratio.
Learning about the Down Payment
As mentioned above, the down payment is the biggest differentiator between mortgage programs and conventional programs. Remember that different banks have different requirements ranging anywhere from 5% to 20%.
Learning about Conforming vs. Non-Conforming
You should know that conventional loans can either be conforming or non-conforming. Conforming loans are the one that are under a specific maximum, whereas the non conforming ones have no fixed amount and are also known as jumbo loans.
Learning about the Requirements
If you want to purchase a new home, conventional loan is the best way to go about because the down payment is low compared to other loans and mount up to 10% for adjustable rates and 3% for fixed rates. The best part is that if you want to take cash out, the loan allows you up to 85% of the total value of the home. If you want to be absolutely sure about things, you can get a pre approval because that will help you in learning about how much you can borrow. Make sure that you are in touch with a loan officer so that they can guide you about the specific guidelines.
Some of the specifications that you should be aware of are:
The loan amount for a single family home is limited to $417,000, but this can rise in areas where the property prices are high. If you have opted for a jumbo loan, you may exceed the limit if you want to purchase a home that has a high price.
The thing about conventional loans is that you may have to put down a down payment that may be 20% or more. If you want loans with smaller down payments, you can opt for FHA and VA loans.
This is suitable for people that have a good credit history and a FICO score of 740 or higher. Again, refer to the given guidelines or contact your lender to learn about the specifications.
Learning about the Fixed Rate Mortgages
A fixed rate mortgage is the one that has an interest rate that does not change as blond as the loan lasts. These loans range from 10 to 30 years, so let’s have a look at them:
30-Year Fixed-Rate Mortgages
This may seem like a long time but it has low monthly payments and fixed interest rates. However, since the term of the loan is 30 years, you end up paying more interest in the long run.
15- and 20-Year Fixed-Rate Mortgages
These loans are suitable for people who want to build equity and want to pay off their loan faster. It is suitable for refinancing, but the monthly payments are high.
Why Opt For Conventional Mortgage?
If you have the conventional mortgage, you will have to buy the private mortgage insurance when you will make a down payment that will be less than 20%. For any other type of mortgage, you will have to pay a mortgage insurance premium. Let’s have a look at all the benefits:
There will be no surprises when it comes to the interest rate as they are fixed and do not rise, which gives the borrower a sense of security.
They have a low APR and interest rate.
The process is smooth because you don’t have to provide with the number of documents that are needed for VA and FHA loans.
There are a number of refinancing options available that you can consider.[/vc_wp_text][/vc_column][/vc_row]