Conventional Mortgage

Conventional Mortgages are often considered the go-to standard of mortgage loans. They have competitive interest rates, are very wide-ranging in options, and can fit most circumstances. You could think of them as the O+ blood type of mortgage loans.

While these mortgage loans are not considered ‘government loans’ like an FHA or VA mortgage (loans that are insured or guaranteed by the government), they are typically purchased by one of two government agencies—Fannie Mae or Freddie Mac.

Benefits of a Conventional Mortgage

We mentioned some of the benefits of a Conventional Mortgage above, such as competitive interest rates and wide-ranging options. Let’s go into the details of these and other benefits offered by Conventional Mortgages.

Low Interest Rates

These loans are generally given to buyers who have sufficient income, above average credit, and a sizable down payment. These factors reduce the risk to the lender that a borrower won’t pay back the loan, and less risk means lower interest rates. The more qualified you are for the loan you’re applying for, the lower the interest rate you are likely to be offered.

Easier to Compare

Most lenders use the uniform guidelines given by Freddie Mac and Fannie Mae when they give you a Conventional Mortgage. This makes it easier to compare these loans based on things like interest rate and costs while keeping all other things equal. One caveat: some lenders may put additional qualification requirements on top of the standard ones, so make sure you pay attention to more than just rate and costs.

Quicker Turnaround Times

While Conventional Mortgages may have more strict guidelines to qualify than their government counterparts, they generally require less in supporting documentation to complete the loan process. This makes them generally quicker to process than either FHA or VA loans.

No Property Requirements

Government-insured loans have specific requirements as to the condition of the property on which they will lend. These same requirements do not typically apply to Conventional Mortgages, which makes one less hoop to jump through when getting these loans. This also gives you the freedom to buy whatever house you wish, especially if you’re a handyman.

Lots of Options

Conventional Mortgages come in many different shapes and sizes to meet your specific needs. You can finance a home loan for as little as 15 years, or as many as 30. You can have a fixed interest rate or a rate that adjusts after a period of time. Some lenders even have boutique products unique to them with unique qualification standards. These boutique products are often serviced in-house instead of being sold.

Other Considerations

While there are many benefits to obtaining a Conventional Mortgage, there are also a few things you should keep in mind as you enter the loan qualification process.

Tighter Qualification Standards

Conventional Mortgages generally have tighter standards to qualify. Because of this, these loans may not be ideal for those with lower credit scores, variable income, or little to no down payment.

Mortgage Insurance

Because these loans are not guaranteed by the government, lenders will require private mortgage insurance on all loans over 80 percent loan-to-value. This can add hundreds of dollars to your monthly payment. One positive note: once you have reduced your loan’s balance to less than 80 percent of your home’s value, the mortgage insurance can be removed as there is little to no minimum requirement for the length it must remain.

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