A conventional mortgage is the most common type of home loan and the right choice for many people. Typically, the interest rates are better, there are lower costs which give you more home buying flexibility. In fact, a conventional mortgage is the loan option of choice for 60% of all mortgage applications. Conventional loans are also known as “conforming loans,” because they conform to the standards set by Fannie Mae and Freddie Mac.
The Conventional Mortgage
Rather than being backed by a government program, conventional loans are offered, funded, and serviced directly by local lenders, like Cunningham and Company. With local decision-making and local processing, the loan process is streamlined since the borrower deals directly with the lender and isn’t dependent on government approvals. As a result, conventional loan applications typically have shorter and less complicated approval processes.
The Conventional Mortgage offer several advantages, including flexibility in the term of the loan (10, 15, 0r 30-year) and fixed or adjustable rates. Plus, if you make a down payment of 20% or more, you will not need to purchase Private Mortgage Insurance (PMI). PMI is required any time you put less that 20% down on a conventional loan. If you have good credit, PMI can cost less that FHA’s mortgage insurance. Since PMI is risk-based insurance, the better your credit history, the lower your premiums, similar to auto insurance. The interest rate of a conventional loan will depend upon your credit score, down payment, and the type of property you are interested in purchasing.
Properties Eligible For A Conventional Mortgage
There are many types of properties that are eligible for conventional financing, including single-family homes, condominiums, Planned Unit Developments (which consist of detached homes within a homeowner’s association), and 2-, 3-, and 4-unit properties. And unlike government loan programs, conventional loans can be used to purchase a second home or a rental property. Rental homes do require higher interest rates and down payments, but the conventional loan remains one of the few programs available to purchase this type of property.
It is even possible to be eligible for a conventional loan following bankruptcy. You will be faced with waiting periods, and you must demonstrate that you have re-established your credit. It is worth checking your eligibility.