What is a Conventional Home Loan?
While an FHA loan might be the ideal solutions for some buyers, if you have good credit and a decent down payment, a conventional loan might be a better option.
A conventional loan is any type of mortgage that is not guaranteed or issued by the Federal Government. Conventional loans can be both fixed or adjustable-rate mortgages, including hybrid ARMs. They typically have higher down payment requirements than government loans, and private mortgage insurance is required if a down payment of less than 20% is made.
If you have a steady income, a low debt to income ratio, and a good – excellent credit score, then a conventional loan could be a great option.
Conventional Loan Advantages:
- Mortgage Insurance may not be required – Mortgage insurance is only required if you make a down payment of less than 20%
- Higher loan amounts – There is more flexibility when it comes to loan amounts
- Even though conventional loans may have higher interest rates, their monthly payments may still be lower
- Can be used on all property and occupancy types
- More loan program options
- Can hold numerous conventional loans
Conventional Loan Disadvantages:
- Higher down payment requirements
- Higher credit score requirements
- Higher mortgage rates
- May be more difficult to qualify for than FHA loan
- Mortgage insurance still required for loans with less than 20% down
