Is a Conventional Home Loan the Best Option for Me?
Updated: Nov 27, 2018
Caliber Home Loans
Discussing the ins & outs of conventional home loans
Why A Conventional Home Loan May Be Right for You
Choosing to purchase your own home is a life-changing decision that requires plenty of forethought. However, there’s a bewildering array of information to navigate, from MLS listings to home insurance policies. One of the most important aspects of the entire process is figuring out how you will be paying for your home. Most people opt to borrow — that is, take out a mortgage — to finance the purchase. Even then, consumers have a multitude of affordable home loans to consider.
One of the most common of all mortgage types is known as a conventional home loan. Is this mortgage right for you, your family and your budget? Read on to learn more.
What’s A Conventional Home Loan?
Conventional loans are not only common. They’re also popular with both first-time and experienced home-buyers. This mortgage loans are especially attractive due to their interest rates typically being set lower than government loans (i.e. FHA, VA, USDA) or non-conforming loans (i.e. jumbo). But what most sets conventional home loans apart from other kinds of mortgages (such as FHA, VA and USDA home loans) is the fact that they aren’t insured by the federal government. Instead, these types of loans must conform to requirements laid out by Fannie Mae and Freddie Mac, government-sponsored enterprises (GSEs) which are publicly chartered but privately owned.
Conventional loans are similar to other types of mortgages in that home buyers can choose from a variety of terms. Such terms include fixed mortgages spanning 30, 15 and 10 years as well as adjustable rate mortgages (ARMs). An ARM is a loan whose interest rate can vary during the loan’s term. These loans adhere to a fixed interest rate for an initial period of time (usually 3, 5, 7 or 10 years) and then typically adjust on a yearly basis. Fixed and adjustable rate mortgages each come with their own advantages and disadvantages. Ask your Loan Consultant which home loan product best fits your financial circumstances and goals.
How To Qualify For A Conventional Home Loan?
As with all mortgage products, applicants for conventional home loans must meet specific requirements in order to qualify. Conventional home loans have a reputation for being among the more difficult mortgages to qualify for, but that is a myth. Those paying for their home purchase with a conventional home loan make up about 46 percent of the market.
On average, most individuals who obtain a conventional loan have good to excellent credit. That said, if you choose to work with a great home mortgage lender, they may be able to options for financing even if you have experienced a past credit event.
When applying for a conventional loan, be prepared to furnish information about your finances, employment and the source of your funds for your down payment. You’ll need to provide your Loan Consultant with pay stubs, W2s, tax returns and more (the requirements are more stringent for those that are self-employed). Once you’ve turned in your paperwork, it’s time to consider the down payment you can afford.
How Much Is Required For A Down Payment?
Many people assume that they’ll need to come up with 20 percent of the purchase price of their home to qualify for a conventional loan, but that’s not necessarily the case. Although many real estate experts recommend putting as much as down as possible to avoid paying mortgage insurance, qualify for a lower interest rate and lock in the most affordable monthly payment, a down payment of 20 percent or more is not a requirement for securing a conventional home loan.
In fact, some conventional mortgages allow applicants to qualify even if they pay as little 3 percent down. This also translates into far lower closing costs. Some lenders even offer special programs that provide down payment assistance via a second mortgage or bond program to qualified borrowers.
So, if you have satisfactory credit, can afford the required down payment, closing costs, and monthly mortgage payments, and are looking to pay off your mortgage as quickly as possible, a conventional home loan may be ideal for you.
How To Start The Process?
Before you begin the search for your dream home, reach out to a home loan professional to see if a conventional home loan will work for you. The process of getting approved can take some time, so it’s advisable to start as soon as you know you’re ready to start shopping.
A mortgage expert at Caliber Home Loans such as Diana MacFarlane can help you get on the right path to home ownership. At Caliber, our Loan Consultants pride themselves on their hands-on, customer-driven approach to lending. By combining extensive knowledge of local real estate markets with the strength and reliability of a national lender, Caliber offers stability, security and peace of mind to anyone looking for a property to call “home sweet home.”