If you’re looking to purchase a home, chances are you’ll need a mortgage. But what is a mortgage, and what are the different types of mortgages available? A conventional mortgage is one of the most common types of mortgages and is typically used when purchasing a primary residence. In this article, we’ll discuss conventional mortgages and their advantages, as well as how they differ from other types of mortgages. Whether you’re just starting out in the home-buying process or already have some knowledge, this article will provide valuable insight into conventional mortgages.
What is a conventional mortgage?
A conventional mortgage is a home loan that is not backed by the government. These loans are available through private lenders and are not guaranteed or insured by the government. Conventional mortgages may have fixed or adjustable rates and can be for terms ranging from 10 to 30 years.
How do conventional mortgages work?
Conventional mortgages are the most common type of mortgage loan. They are also sometimes referred to as “conforming” loans, because they conform to guidelines set by government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.
A conventional mortgage typically requires a down payment of at least 5%, although some lenders may allow you to put down as little as 3%. If you put down less than 20%, you may also be required to purchase private mortgage insurance (PMI), which protects the lender in the event that you default on your loan.
The interest rate on a conventional mortgage is determined by a variety of factors, including the type of loan (fixed-rate or adjustable-rate), the term of the loan, your credit score, and the size of your down payment. Generally speaking, borrowers with higher credit scores and larger down payments will qualify for lower interest rates.
Who can get a conventional mortgage?
The vast majority of conventional mortgages are issued to people with good or excellent credit. That means a FICO score of at least 740. If you have a lower score, you might still be able to get a mortgage, but you’ll likely pay a higher interest rate.
Conventional loans are also available to people who can put down a large down payment, typically 20% or more of the purchase price. If you don’t have that much saved up, you can still get a conventional loan, but you’ll need to pay for private mortgage insurance (PMI).
To qualify for a conventional loan with a low down payment, you’ll need strong income and employment prospects and good credit.
Pros and cons of a conventional mortgage
There are a few key things to consider when weighing the pros and cons of a conventional mortgage. First, with a conventional mortgage, you’ll typically need a higher credit score in order to qualify. Additionally, with a conventional loan, you’ll be required to pay private mortgage insurance (PMI) if you don’t make a down payment of at least 20%. On the plus side, interest rates on conventional mortgages are usually lower than those on government-backed loans such as FHA or VA loans. And, once you have paid off your mortgage completely, you will own your home outright.
To sum up, a conventional mortgage is an ideal type of loan for many borrowers who have good credit and the ability to put down a larger down payment. They offer more flexible terms than other types of loans since interest rates are often lower than government-backed mortgages, and lenders may not require as much paperwork or income documentation. It’s important to review your options carefully before selecting a loan option that’s right for you.