Conventional loans are a popular choice for many home buyers and refinancing borrowers. Whether you’re looking to purchase your first home, upgrade to a bigger space, or refinance an existing loan, understanding the basics of conventional loans is a great place to start. In this blog post, we’ll cover everything you need to know about conventional loans, including what they are, the benefits, and the eligibility requirements. Keep reading to learn more about conventional loans and how to determine if they’re right for you.
What is a conventional loan?
A conventional loan is a type of mortgage loan that is not insured or guaranteed by the government. It is typically offered through a private lender, such as a bank or credit union, and can be used to purchase a home, finance repairs and improvements, or refinance an existing mortgage. Unlike other types of mortgages, conventional loans are not backed by the federal government. This means that if the borrower defaults on the loan, the lender cannot seek government compensation.
Conventional loans are also known as conforming loans because they must conform to guidelines set by Fannie Mae and Freddie Mac. The most common conforming loan limits are $484,350 for single-family homes in most parts of the country, but this amount can vary depending on your area. In high-cost areas, the limit can be up to $726,525.
Conventional loans typically have fixed or adjustable interest rates. Fixed rate loans have an interest rate that stays the same for the duration of the loan term, while adjustable rate mortgages (ARMs) have a variable interest rate that can change over time. ARMs usually have lower initial interest rates than fixed rate loans, but can increase or decrease over the life of the loan.
Who offers them?
When it comes to conventional loans, there are a variety of banks and lending institutions that can provide you with financing. Banks such as Chase, Bank of America, and Wells Fargo are all major lenders who offer conventional loans. Credit unions, online lenders, and even smaller community banks are also able to provide consumers with these types of loans. Depending on your credit score, location, and other factors, different lenders may offer more competitive rates than others. It is important to shop around and compare lenders to ensure you get the best possible loan for your needs.
Many lenders will require borrowers to have good credit scores in order to be approved for a loan, though some may be willing to work with those who have lower scores depending on the amount being borrowed. Additionally, lenders will typically look at your income, assets, and debts when determining eligibility for a loan. Your ability to make timely payments each month will also be an important factor in determining whether or not you qualify for a conventional loan. Other requirements include providing documentation that supports your employment status, residence history, and financial obligations.
Before applying for any type of loan, make sure you review the terms and conditions thoroughly so that you understand what you’re getting into and how long you’ll need to repay it. Finally, understand that when considering a conventional loan, interest rates are generally higher compared to other types of loans due to their unsecured nature. However, they usually have lower origination fees associated with them making them cost effective over time.
Who can get them?
Conventional loans are generally available to most individuals who can meet the required lending criteria. Generally, to qualify for a conventional loan you must have a good credit score and have a debt-to-income ratio of less than 43%. Additionally, you need to have enough money saved for a down payment (typically 20% of the purchase price).
In some cases, lenders may accept alternative sources of income, such as alimony or child support, or they may also accept income from side jobs.
If you have a VA or FHA loan, you may be able to refinance it into a conventional loan. Additionally, if you’re self-employed and don’t show regular income, there are programs that could help you qualify.
Ultimately, each lender has different guidelines for what qualifies for a conventional loan, so it’s best to shop around to find the one that works best for your situation. It’s important to note that if you’re applying for a jumbo loan, which is more than $510,400 in most places, then you’ll likely need more stringent requirements including higher credit scores, more cash reserves, and higher incomes.
What are the benefits?
Conventional loans offer many advantages for borrowers. One of the major advantages is that they often come with lower interest rates than other types of loans, such as FHA or VA loans. They also have more flexible credit requirements, so borrowers who don’t have the best credit scores can still qualify.
Additionally, conventional loans often offer lower down payment requirements than other types of loans. In some cases, you can get a conventional loan with as little as 3% down. This makes it easier to buy a home without having to save up a large amount of money for a down payment.
Finally, one of the biggest benefits of conventional loans is that you don’t have to pay mortgage insurance like you do with FHA and VA loans. Mortgage insurance is an added cost that increases your monthly payment and reduces the amount of house you can afford. By avoiding this extra expense, you can save thousands over the life of your loan. Plus, when you reach 20% equity in your home, you may be able to cancel your private mortgage insurance (PMI). This will make your payments even more affordable.
Conclusion
In Houston and the surrounding areas, Texas Premier Mortgage provides loans for home equity, refinancing, and purchases. Our aim is to offer you the greatest prices and lowest fees along with our distinguished service. Conventional, FHA, VA, Jumbo, and USDA mortgage loans are all available from us. The mortgage loan that best meets your needs and exceeds your expectations will be determined by our team of experts. We have access to the best and most recent programmes available because we are mortgage brokers.
