Conventional mortgages are the most popular form of home financing for buyers in the United States. However, it may not always be clear how these loans differ from other loans, such as those provided by government agencies. To help you gain a better understanding of conventional loan basics, here is a quick guide with further information:
The best way to qualify for a conventional loan
When obtaining conventional financing, your lender will examine your financial situation. The loan officer may request information including your credit score, income statements and debt to income ratios.
A down payment is required for conventional loans. Each lender has different minimum requirements, but the larger the down payment, the less money you’ll have to pay back over time.
Minimum required down payments
Many believe a 20% down payment is required for conventional loans, but the minimum requirement is typically much lower. You can find mortgages with minimum down payment requirements anywhere from 3% to 20% of the overall purchase price.
Your choice of down payment amount can affect the terms of your mortgage, like interest rate or the need for private mortgage insurance.
Conventional loan vs a government loan
Government-backed home loans have specific features to suit some homebuyers.
The Federal Housing Administration (FHA) is a government institution offering home loans for buyers who meet certain qualifications. Government-backed loans have advantages for those with bad credit or other financial roadblocks, but require other qualifications for approval.
Interest rates
Conventional mortgages tend to have higher interest rates than FHA loans, although these loans typically require borrowers to pay mortgage-insurance premiums.
Interest rates charged on a conventional mortgage vary by several factors, including the term and amount borrowed. However, interest rates are also subject to change every year based on the overall economy. Many buyers choose to wait for a period when interest rates are lower to apply for a mortgage, regardless of the loan type.
Ultimately, your choice of loan will depend on your personal circumstances. The more you know about different types of mortgage, the better equipped you’ll be for your journey into thefinancial real estate marketplace.
About the Author
Ryan Christensen
Responsive, Responsible and Resourceful - How Real Estate Should Be. This is the foundation of our continued success: responsive service, providing accurate and timely information, and demystifying the process. 100% of my business is referral based because I listen to my clients' needs and exceed their expectations. As a full-time real estate broker, I am the best advocate for both my buyers and sellers. I am always available, regardless of the time of day.
Being a native Southern Californian is a tremendous advantage. I know the area. Time is more valuable than money, but neither can be wasted. And, I'm a fan of hard work. My clients can enjoy their home buying and/or selling experience because I provide a trusting, focused, straightforward approach. I look forward to helping you achieve your goals and find joy in homeownership.
I am both a licensed Real Estate and Mortgage Broker. Others choose to concentrate on one or the other. I provide a higher level of service and expertise than those who do not obtain this dual skill set, which differentiates me from other service providers. My decisions and advice are based solely on what is in the best interest of my clients. I use Real Estate Sales as a tool to make sure my clients get the home that meets or exceeds their needs. As a Mortgage Broker, I search for the best loans so I can offer lower rates and pricing than my financing competition. This certainly IS in the client's best interest.