Conventional Mortgage: What is a Conventional Home Loan?

What is a Conventional Mortgage Loan?

A conventional mortgage is a home loan that is not insured, or guaranteed, by the federal government. These loans are best suited for qualified borrowers who have a steady job and income, and have saved for a down payment. Conventional loans are for buyers who are financially stable overall. With this type of loan, the mortgage company sets the terms of the loan and works directly with the borrower. On a conventional loan, the mortgage company has determined the borrower has the ability to make timely payments, and will not default on the loan.

Conventional Mortgage Loans vs Government Mortgage Loans

Conversely, government-backed loans like the VA, FHA, USDA and other loan programs are intended for people who can’t afford a significant down payment, are first-time homebuyers, and/or need some other type of financing assistance. Government-backed loans 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 Mortgage Loan Advantages

Conventional home loans are available for both new home purchases and refinancing. They offer a qualified borrower much more flexible terms and fewer restrictions than government-backed loans.

Advantages of conventional mortgage loans include:

  • With fewer rules and regulations to meet, the application process is simpler and more streamlined.
  • More options are available, so it’s easier to create a customized loan to fit your goals and financial needs.
  • Almost all types of properties—single, multi-family, condominiums, etc.—can be purchased with a conventional loan.
  • Mortgage insurance is waived if you have at least 20% to put down on a purchase, or at least 20% equity when refinancing.
  • Borrower stability and good credit leads to lower interest rates.
  • The interest you pay on your loan is tax-deductible1, providing an extra benefit at tax time.

 

Types of Conventional Mortgage Loans

Mortgage Consultant Jeff Berman with PrimeLending can offer two types of conventional loans: fixed-rate and adjustable rate mortgages.

  • Fixed-rate loans have an interest rate that is determined at closing and does not change for the entire life of the loan. The most common terms are 15 or 30 years, however other options are available. These loans offer stable, predictable payments that won’t change. Monthly payments are usually low and spread out over time. These are a great option 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 over the term of the loan. There is an initial up-front period when the rate is fixed, often one year. 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—often increasing—which will also affect 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.

To find out if a conventional loan from PrimeLending is right for you, contact Jeff Berman, The Mortgage Go To Guy. As one of the most knowledgeable and experienced mortgage consultants in Dallas, Jeff can find the best loan to fit your needs and get you into your dream home. Simply call Jeff at 214-989-7700 or complete the form below.

1PrimeLending is not authorized to give tax advice. Please consult your tax adviser for tax advice for your specific situation.