Everyone dreams of having their own house, but not many are able to buy it at the right time. With so many mortgage options available on the market, it is easy to get confused and drop the idea of buying a house. If you have scoured the web, then you might have stumbled upon this term ‘conventional loan’, which is one of the most popular mortgage loans available on the market. Let’s delve into the details of this particular type of loan and it fares against other loan options.
What is the difference between conventional loans and the ones backed by the government?
Government-backed loans include the Federal Housing Administration (FHA) Loans, whereas conventional loans include Veterans Administrations (VA) Loans. With an FHA loan, you will have to put a minimum of 3.5% down along with paying MIP, which is a mortgage insurance premium as a part of your monthly payment. If you default on the loan, then the FHA uses the money from the MIP to pay the lenders.
As far as a VA loan is concerned, you or your spouse must be a current or former member of the US Armed Forces or National Guard. There is no down payment for you to pay, but there is a one-time funding fee, which ranges from 1-3 percent of the total loan amount. In this type of loan, if you default, then the lender is at risk, and the money will be extracted from you by selling your house through a short sale process of foreclosure. As there is an added risk to the lender, you will have to pay private mortgage insurance (PMI) on the conventional loan if you submit less than 20% down.
Do conventional loans have types? If yes, what are they?
Well yes, conventional loans have two types, conforming and non-conforming.
Conforming Conventional Loan
To qualify for this particular type of conventional loan, you must meet the requirements set by Fannie Mae and Freddie Mac, which expand to ‘Federal National Mortgage Association’ and ‘Federal Home Loan Mortgage Corporation’. Both are government-sponsored organizations that buy mortgages from lenders.
Nonconforming Conventional Loan
If the conventional loans exceed the loan limit, then those are called non-conforming conventional loans. Such loans are not bought by Fannie Mae or Freddie Mac, as they don’t meet the guidelines, so they are funded by lenders or private companies.
How to qualify for a conventional loan?
The first thing that you need to do to qualify for a conventional loan is to sit down with a lender. Provide all the things that your lender asks for such as, tax returns, pay stubs, bank statements, and so on. They ask for these things to be sure that you have a steady income and you can pay the monthly mortgage payments on time. You will also be required to pay a down payment of 3% to qualify for the conventional loan, but it is better to pay as much down payment as you can because that will make your monthly instalments easy to arrange.
Advantages of a conventional loan
1. Fast loan processing.
2. Low-interest rates.
3. Flexible down payment options, starting as low as 3 percent.
4. Different term lengths on a fixed-rate mortgage, starting from 10 years and going all the way up to 30 years.
If you still have doubts in your mind, but also want to apply a loan to buy a house, then you should consult PIF Lending because they are helping people buy their first home in a stress-free manner. Just get in touch with one of their experts and get all the information on what you need to do before, during, and after applying for the conventional loan.