There are plenty of loan programs that help certain individuals out and are backed by the federal government. However, even if you don’t qualify for a specialized loan, such as a FHA or VA loan, you can still work out favorable terms for yourself under our program that offers a conventional loan.
What is a conventional loan?
To put it very simply, a conventional loan is merely a loan where the mortgage is not backed by any sort of federal agency. For example, the Federal Housing Administration backs certain loans for lower income individuals, which helps lower income families secure homes with lower down payments through FHA loans. A VA loan is similar, but is designed to offer loans to armed service members or veterans through the GI Bill, all with a minimal down payment, or none at all. A conventional loan is backed by no agencies.
There are multiple types of loans that would be classified as conventional loans…
Who qualifies for conventional loans?
Pretty much anyone with a decent financial foundation will be able to qualify for a conventional loan. A traditional conventional loan program will usually require at least a 5% down payment, along with the appropriate documentation and a decent credit score. These numbers depend on the specific type of conventional loan that an individual is seeking.
Benefits over a FHA loan
Even though a conventional loan isn’t backed by a federal agency that helps people secure better terms on their mortgage, there are actually potential benefits that lead to greater savings over something like an FHA loan.
The reason that this is possible is due to mortgage insurance payments, which are required for borrowers who own less than 20% equity of their home. Off the bat, individuals with a 20% down payment are almost never going to be required to pay private mortgage insurance payments. However, even if you are putting down a minimal 5% down payment, you can petition to eliminate private mortgage insurance payments after 2 years of on-time payments, while an FHA borrower must wait 5 years to do the same thing. To put this in perspective, a $200,000 home with a 30 year 4.5% fixed-rate mortgage would cost a little over $1,000 every month. Even a lowly 0.5% private mortgage insurance payment is going to be costing you over $80 per month.