A conventional loan is a mortgage that is not insured, or guaranteed, by the federal government. They’re popular with borrowers who have good credit, a stable job and income, who can afford a down payment, and people who are financially stable overall. Government-backed loans like the VA, FHA, USDA and other loan programs are designed for people who can’t afford a significant down payment, have less than perfect credit, are first-time homebuyers, and others who may need some type of financing assistance.
With a conventional loan, PrimeLending sets the terms of the loan and works with the borrower directly. In this situation, PrimeLending has determined the borrower can make all their payments on time and will not default on the loan. Government-backed loans, on the other hand, have terms set by the federal government who then insures or guarantees the loan, protecting the lender in the event a borrower defaults on the mortgage.
Conventional Loan Benefits
Conventional loans are a good choice for new home purchases and refinancing. Unlike government-backed loans, they are sometimes harder to get because of the additional credit and financial requirements, but you will eventually discover that they offer much more flexible terms and fewer restrictions, which makes them more convenient.
Advantages of conventional loans from PrimeLending
- They are much simpler to apply and qualify for, with less paperwork, and you’ll have fewer rules and regulations to meet.
- You have a lot more options to choose from, the terms are more flexible and easier to customize and match to your financial situation and goals.
- They can be used for almost all types of properties, from single- and multi-family homes to condominiums and even manufactured homes.
- If you have at least 20% to put down on a purchase, or at least 20% equity when refinancing, you are not required to pay mortgage insurance.
- Conventional loan rates are often quite low since we know the borrower is financially stable and has good credit.
Types of Conventional Loans
There are two types of conventional loans: fixed-rate and adjustable rate mortgages.
- Fixed-rate mortgages have an interest rate that does not change for the life of loan. 15- and 30-year terms are the most common. They offer stable, predictable payments that also don’t change. Monthly payments are usually very low because they’re spread out over time. They’re great long-term loans if you plan to stay in your house for at least seven or more years.
- Adjustable rate mortgages have an interest rate that does change. There’s an initial up-front period when the rate is fixed. During this time, the interest rate and monthly payments are even lower than a fixed-rate mortgage. However, after the initial period, your rate can change or adjust, usually higher, along with your monthly payments. Adjustable rates are ideal for people who don’t plan on staying in their home past the time when the interest rate will change, usually after 3-, 5-, 7- or 10-year terms.