Conventional Loans
A conventional loan is a type of mortgage that is not insured or guaranteed by the federal government, unlike government-backed loans such as FHA, VA, and USDA loans. This means that the lender assumes the risk of the loan and borrowers are required to meet certain eligibility criteria and financial requirements. If you're thinking of buying a home, check out the information below to see if a conventional loan may be a good option for you.
What is a Conventional Loan?
A conventional loan is a mortgage that is originated and funded by private lenders such as banks, credit unions, and mortgage companies. It is a type of loan that is not insured or guaranteed by the government. In other words, the lender assumes the risk of the loan instead of the government. A conventional loan can be used to purchase or refinance a home or investment property. It is important to know that there are two types of conventional loans: conforming and non-conforming loans.
Who is Eligible for a Conventional Loan?
To be eligible for a conventional loan, you will need to meet certain criteria such as having good credit, a stable income, and a low debt-to-income ratio. The exact requirements vary and depend on the type of conventional loan you are applying for. Typically, borrowers will need at least a credit score of at least 620, although it may require a higher score. You will also need to provide proof of income, which can include pay stubs, W-2s, and tax returns.
What are the Advantages of a Conventional Loan?
There are many advantages to having a conventional loan.
- Higher Loan Limits: allowing you to borrow more money than government-backed loans. This is because there are much higher limits on the loan amount, unlike FHA loans, which have lower maximum loan limits based on the area you live in.
- Flexibility: offering flexibility in terms of down payment requirements, loan terms, interest rate options, and escrow options, allowing borrowers to tailor their financing to suit their specific needs and financial situations.
- No Mortgage Insurance: Borrowers who provide a down payment of at least 20% can avoid paying private mortgage insurance, potentially saving thousands of dollars over the life of the loan. Even if you don't have 20% down payment, there are options available for eliminating or lowering the cost of PMI, like Lender-paid, Borrower Single-premium paid, Borrower Split-premium paid.
- No Up-Front Mortgage Insurance Premium: Unlike government loans, conventional loans do not add any up-front mortgage insurance premium cost to the total amount financed. This means your loan amount does not increase if your loan has Private Mortgage Insurance.
- Refinancing Options: Conventional mortgage holders may take advantage of refinancing opportunities to lower their interest rates, adjust their loan terms, or tap into their home equity for other financial needs.
What are the different types of Conventional Loans?
The most common type of conventional loan is a fixed-rate mortgage, which offers stable monthly payments over a set interest rate for the life of the loan. Another popular option is an adjustable-rate mortgage, which offers lower initial interest rates that can adjust up or down over time. Many borrowers also choose to take advantage of jumbo loans, which are designed for higher-priced homes that exceed the conforming loan limits of a traditional mortgage.
If you have any additional questions, be sure to contact Nexa Mortgage Wichita Team to see if a conventional loan is the right choice for you.
