Conventional Loans

Conventional Loans

You have two broad options when you want a mortgage: a government-insured loan like an FHA loan or VA loan , or a conventional loan. Conventional mortgages are not backed by the government, but rather insured by private companies.

As conventional mortgages are not backed by the government, they are viewed as a higher risk and thus have higher standards you must meet to be approved. Conventional mortgage lenders have higher income and credit guidelines, but they offer a range of advantages to borrowers.

Conventional Home Loans

Advantages of a Conventional Mortgage

Conventional home loans are usually the best choice if you have excellent credit and can put down at least 20% on your loan. Conventional mortgages are very flexible, as they can be used to buy not only a primary residence, but also an investment property or a vacation home. This is unlike VA loans and FA loans which can only be used to buy your primary residence. Conventional home loans can have a term of anywhere from one to forty years, and either a fixed or adjustable interest rate.

There are many important benefits to choosing a conventional loan over a government-backed loan including:

  • Much lower fees than FHA mortgages.
  • Private mortgage insurance (PMI) is only required when you put down less than 20%.
  • PMI, if necessary, can be removed as soon as you build enough equity, unlike FHA loans.
  • Down payments as low as 3% for well-qualified borrowers.
  • Loans typically close faster.
Benefits of Conventional Mortgages

Qualifications for a Conventional Loan

Conventional loans have stricter requirements than government insured loans. General guidelines for getting approved include:

  • Down payment as low as 3% (or 20% to avoid PMI)
  • FICO score of 740 or higher
  • Monthly housing costs should not exceed 28% of your gross (pre-tax) monthly income
  • Monthly debt should not exceed 36% of your gross monthly income
  • Must be discharged from Chapter 7 bankruptcy for at least 4 years and reestablished credit

If you qualify for a conventional mortgage, it is most likely a better option for you than an FHA mortgage. FHA loans, unfortunately, have become more costly over the last few years due to increasing insurance premiums.

Qualifications for a Conventional Loan

Conventional Loan vs

Government Insured Loans

When you are deciding between a conventional and government insured mortgage such as FHA or VA, think about what is most important to you. If you have excellent credit and the ability to put down 20%, a conventional mortgage will save you more in the long run. If you want to pay less up front and get a higher monthly mortgage payment, you may prefer a government-backed mortgage.

Conventional Loan vs Government Insured Loans

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