Conventional Loans

Conventional Loans
Conventional loans are mortgage products that are bought, sold, and insured on the private mortgage market.  That is, they don’t have government sponsorship, endorsement, or insurance like loans done through FHA, VA, or USDA financing.  Like other loan types, conventional loans come in all different shapes & sizes, from low down payment purchase loans to renovation products, a wide range of consumer demands can be met with Conventional loans.

 

Conventional loans are products that come along with many misconceptions, but the fact is that these loans are much easier to get, and not much different than other products, than many consumers and real estate agents realize.  Consumers can get conventional loans with a minimum of 3% down payment, and credit scores that are far less than perfect.  Conventional loans are not as forgiving as FHA loans when it comes to credit history, but borrowers do not need a perfect history to get a loan – even past bankruptcies, foreclosures, or judgments won’t exclude you from getting Conventional loans.

 

PMI?
Conventional loans with less than 20% down payment come with PMI, either paid monthly or by a lender through a higher interest rate with a product called LPMI.  PMI allows borrowers to put down less than 20% (or when refinancing, borrow more than 80%) while still getting a great interest rate.  Talk to an expert to see if PMI or LPMI would be a better option for you.

 

ARMs?
Conventional loans come in fixed rates ranging anywhere from 5 year fixed rate loans to 30 year terms (and every term you can imagine in between).  Typically, the lower the term, the lower the rate (for example, a 15 year fixed rate would have a better rate in most cases than a 30 year fixed rate loan).  But what about ARM loans?  Conventional loans can come with adjustable terms that are fixed for a set period of time (typically 3, 5, 7, or 10 years) and then adjustable thereafter.  The primary benefit of conventional loans with adjustable terms is that during the initial fixed rate period, interest rates can be much lower than fixed rate loans.  This makes conventional loans with adjustable terms (ARM loans) extremely attractive to investors, those who don’t plan on retaining a home for 10+ years, or those who would prefer to invest their cash each month outside of their mortgage.

 

Are Conventional Loans the best mortgages?
In many ways & for many borrowers, conventional loans are the best mortgage option available.  Especially for buyers with high credit scores, conventional loans offer low rates, flexible terms, a fast underwriting process, high loans amounts (currently up to $625,500 in high balance areas), and for those with 20% or more equity/down payment, no PMI.  Unlike FHA, VA, and USDA loans, there is also no additional government insurance charge.  For others, though, another loan option may be a better option.  Conventional underwriting guidelines are different than other loans, have more demanding credit requirements, and for lower FICO scores, can come with very costly PMI.  Your best bet is to talk with a mortgage expert to determine which program is right for you.

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