Paying off a mortgage may become an integral part of your life as you reach an age of financial stability.
In the United States today, almost everyone who buys their first home does so through some lending agency.
These loans are often government-insured, obtained through the Federal Housing Administration (FHA) and can add to your overall mortgage costs.
Why do loans need to be insured? Simply to protect the lender from loss or when repayment of the loan cannot be made.
However, there is an alternative to FHA loans and that is in the form of a conventional home loan.
Typically, these loans are obtained from an independent financial institution, unrelated to the government.
If you’re interested in applying for one of these loans and want to know more about the advantages, keep on reading.
What Is a Conventional Home Loan?
Generally speaking, a conventional home loan is the most difficult to qualify for.
Despite this, they remain highly popular because of their low, fixed interest rates.
The federal government doesn’t insure conventional home loans. Some of the basic requirements to qualify include:
- A large down payment – typically up to 20% of the home’s value
- A good credit score
- A moderately high annual income
The main reason why many potential home buyers opt for FHA-insured home loans is due to the low down payment requirements.
However, some of the advantages of a conventional loan may outweigh this down payment consideration.
The Advantages of Conventional Home Loans
If you qualify for two or more of the factors listed above, you may be better off applying for a conventional home loan.
Just some of the advantages include:
1. Receive Your Loan Faster
Typically, these types of home loans require far less paperwork than FHA obtained home loans.
The loan only needs to be approved by the financial institution and doesn’t need to go through rigorous reviews conducted by the FHA.
Additionally, the property you wish to buy will not have to undergo time-consuming inspections by the FHA.
2. Avoid Upfront Mortgage Insurance
One of the stand-out advantages is not having to pay upfront mortgage insurance on this loan.
Additionally, your financial lenders don’t add high insurance premiums to your mortgage payments.
This lack of mortgage insurance is one of the biggest draws for applying for this loan, as your monthly mortgage repayment can be greatly reduced.
Mortgage insurance is charged at 2.25% of the loan amount, regardless of your down payment.
Conventional loans usually have the option of paying insurance and taxes directly through an escrow account, which takes two payments off your monthly budget.
Ultimately, you can avoid the additional cost of mortgage insurance being added to your monthly payment with a conventional loan.
3. Secure a Competitive Mortgage Rate
When applying for a conventional loan, you’ll need to have a good credit score.
Based on your good credit requirements, you’ll be offered a lower mortgage rate for your monthly repayments.
The FHA approves home loans based on lower credit ratings.
In this case, these types of loans are considered higher risk. Therefore, mortgage rates are increased.
With a conventional loan, you’re offered some of the most competitive mortgage rates on the market.
4. Flexible Repayment Terms
With a conventional loan, there are various mortgage repayment periods to consider.
Each repayment term offers different mortgage rates. Ultimately, the faster your repayment term, the lower your mortgage rate will be.
Conventional loans offer 10, 15, 20, 25 and 30-year repayment terms, whereas FHA loans don’t offer nearly as many options.
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We at 7th Level Mortgage are an experienced team of mortgage professionals based out of New Jersey and serving the east coast from Pennsylvania to Florida including Delaware and Maryland. We have won numerous awards for our excellent professional work and reputation with clients for being extremely diligent, accessible and hands-on throughout the entire mortgage process.