Welcome to the world of mortgages, where the term “conventional mortgages” is often thrown around. But fear not, we’re here to simplify this common mortgage type in a friendly and approachable manner!
Understanding Conventional Mortgages
What is a Conventional Mortgage?
So, what exactly is a conventional mortgage? In simple terms, it’s a home loan that doesn’t rely on backing from government agencies like the Federal Housing Administration or the Department of Veterans Affairs. Instead, these loans adhere to guidelines set by Fannie Mae and Freddie Mac, following the loan limits outlined by the Federal Housing Finance Administration (FHFA).
Qualifications for Conventional Mortgages
Qualifications for conventional loans typically require a credit score of at least 620, though aiming for a score above 740 can land you the best rates. Sometimes you may be able to obtain a loan with a lower credit score though so it is always worth it to speak with a lender. Additionally, down payments can be as low as 3%, depending on your financial situation. Remember, a higher down payment could mean better interest rates!
Comparing Conventional Mortgages to Government Loans
Government-Backed Loans vs. Conventional Mortgages
Comparing conventional mortgages to their government-backed counterparts, we find that government-backed loans are insured by federal agencies to encourage lenders to offer mortgages to a broader audience. These loans typically offer more lenient requirements, making homeownership more accessible to various demographics. Think FHA loans, VA loans, and USDA loans, each with unique perks and qualifications, like low down payments.
Advantages of Conventional Loans
However, conventional loans offer flexibility not found in government-backed loans. They’re not limited by income, location, or military status. They offer greater flexibility in terms of property types, loan amounts and borrower qualifications. Borrowers have more control over mortgage options and there is a wide range of loan terms and interest rates available. As long as you meet the lender’s criteria, you’re good to go!
Types of Conventional Loans
Conforming vs. Nonconforming Loans
Conventional mortgages come in two flavors: conforming and nonconforming loans. Conforming loans adhere to Fannie Mae and Freddie Mac’s guidelines, while nonconforming loans, such as jumbo loans, cater to those needing larger loan amounts or with unique financial situations.
Why consider a conventional loan?
For starters, you’ll have more property options, including second homes and investment properties. Plus, you’ll enjoy greater control over mortgage insurance, fewer fees compared to government-backed loans, and a variety of loan structures to choose from.
So, if you’re in the market for a mortgage and meet the criteria, a conventional loan could be your pathway to homeownership. We work with some of the best lenders in the Summit County Market. Contact us today so we can get you started on the right path to homeownership!