What You Need To Know About Conventional Mortgage Loans
Thinking of buying a home and planning on doing so on a mortgage? If yes, then among your top considerations should be the type of mortgage you need. At this point, there is no doubt that you’ve heard about conventional mortgage loans. But do you know what exactly they are and is one suitable for you? Choosing the right loan to fuel you towards achieving the American dream is the thin line between a hassle-free mortgage repayment process and a stressful one. To ensure that yours is hassle-free here is a breakdown of all you need to know about conventional loans.
What Exactly Is A Conventional Mortgage Loan?
Simply put, a conventional loan is a mortgage that is not insured by a government entity. Instead, this type of loan is often offered by private lenders, for instance, banks and credit unions, or Fannie Mae and Freddie Mac, the two main mortgage buyers on US’s secondary real estate market. In other terms, the primary difference between conventional and FHA loans is that the US government fully backs FHA loans. Also, government-backed mortgage loans can only be used to finance the purchase of a primary home while conventional ones can be used to fund a primary, second, vacation or a rental property.
Conventional Loan Requirements
This type of home-buying loan isn’t for everybody. If you are considering them as an option, it is essential that you first seek any Conventional Mortgage Services phoenix az from a licensed firm to know whether you qualify. But before you do that, here are some of the basic requirements
– A good credit score. Usually those with a score of 620 and above qualify.
– You must have sufficient assets to cover down payment and all the associated closing costs.
– The debt-to-income ratio of the applicant must not exceed 43%
They Are Easily Accessible
Usually, government-backed mortgage loans have a stringent requirements which most banks are typically unable to meet. As a result, only a few banks can offer you such mortgages, making it hard for you to access them. On the other hand, the rules and regulations of a conventional loan aren’t that strict, and as a result, more financial facilities are often willing to offer these programs hence making them easily accessible. Additionally, because of the high competition, most banks are often willing to provide you with a loan at a lower interest, thereby cutting your closing costs.
Cheaper Mortgage Insurance
Besides lower interest rates, conventional mortgage loans mean less costly mortgage insurance in comparison to the amount you will pay on an FHA loan.
Conventional mortgages offer fixed-rates. This means that unlike FHA loans, you don’t have to stress about the variable interest rates because payments stay the same each month regardless of the real estate conditions. This means that even if you undergo a drastic change in your financial status, you don’t have to worry about the rising rates of the housing market. However, depending on your preference, you can also go for adjustable rates.