What is a conventional mortgage loan?
What is a conventional loan and is it right for me?
When getting a mortgage, it’s easy to feel overwhelmed by the amount of terminology you need to familiarize yourself with during the application process. We get it. Home equity loans, lines of credit, fixed and variable rates and types of loans are only a few of the words you’ll come across. So how can you make sure you’re taking the proper steps and making the right financial decisions for you and your family when it comes to buying a house? Let’s start by understanding the type of loan you’ll need.
There are three common types of loans:
Federal Housing Administration Loans
Federal Housing Administration (FHA) Loans benefit buyers with low credit scores. Even though FHA loans are easier to obtain and you will have to put less money down than with Conventional Loans, you will be required to pay mortgage insurance.
Veteran Affairs Loans
VA Loans are an option available to United States Veterans, Service Members and not remarried spouses. VA Loans are issued by qualified lenders and guaranteed by the U.S. Department of Veterans Affairs (VA).
Conventional Loans, which are harder to obtain but can provide more benefits in the long term. In this article, we will focus on this type of loan.
What is a Conventional Loan?
According to Experian, “A conventional loan is a mortgage that is not backed by a government agency,” they explain. “Conventional loans are often also called “conforming” loans because they follow lending rules set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.”
Because a conventional loan is a mortgage that is not guaranteed or insured by any government agency, it is usually only available to people with higher credit scores and higher income rates. Additionally, the loan is typically fixed in its terms and rate, meaning that interest rates will not fluctuate during the fixed term period of the loan, which typically rates from 10 to 30 years.
How Do I Know What Kind of Loan I’m Eligible for?
Themortgagereports.com says you may be eligible for a conventional loan if:
- You have a 640 credit score or higher
- You’re putting down a large down payment (5% – 20%+)
- You plan on putting down 20% to avoid Private Mortgage Insurance (PMI)
- You have a good income (high debt-to-income ratio)
- You’re purchasing a higher priced home (over $271,050 in most areas)
Keep in mind that adding a mortgage to your mix of credit could positively impact your credit score, as consumers who can manage multiple types of credit are seen as less risky. If you think you might be eligible for a conventional loan, click here for some tips on how to find the right mortgage lender and get started by getting a mortgage pre-approval!
Is a conventional loan better than a federal housing administration loan?
Because everyone’s financial situation can be so different, it’s hard to say if one type of mortgage is better than the other. As mentioned before, Conventional Loans have more requirements than FHA Loans, which is why it’s so important to keep a good credit score and a good financial reputation.
What if I’m not eligible for a conventional loan?
Conventional loans are a popular option, but they are not the only one. If you aren’t eligible for a conventional loan, don’t panic! Sometimes FHA loans are a more suitable alternative for people whose house payments will be a big chunk of take-home pay, borrowers with low credit scores, and homebuyers with small down payments and refinancers with little equity.
(Note: This article is for information only. LendingPoint does not offer mortgage loans.)
LendingPoint is a personal loan provider specializing in NearPrime consumers. Typically, NearPrime consumers are people with credit scores in the 600s. If this is you, we’d love to talk to you about how we might be able to help you meet your financial goals. We offer loans from $2,000 to $25,000, all with fixed payments and simple interest.