If you don’t qualify for a specialized loan, such as an FHA, VA, or USDA-backed loan, then you can still work out favorable terms for yourself under our conventional loan program.
A conventional loan is not backed by any federal agency, as opposed to a loan like a FHA loan, which is backed by the Federal Housing Administration for low income families and individuals.
Rather than being based on class, geographic location, or previous military service, conventional loans are standardly based on income, credit, and down payments. Any person who has an appropriate credit score and at least a 5% down payment can qualify for a conventional loan.
While the benefits of having a federally-backed loan don’t apply to traditional conventional loan programs, there are some ways that conventional loans can actually lead to great savings, at least when it comes to FHA loans.
Unless you put down 20% or more on a down payment for a mortgage, you will need to pay private mortgage insurance (PMI). However, even if you only put down a minimal 5% down payment, you can petition to eliminate private mortgage insurance payments after 2 years of on-time payments, when on a conventional loan, but not on an FHA loan.
This can lead to hundreds of dollars in savings, every year, on payments that aren’t going towards the equity on your home. In this way, conventional loan programs can make up for the lower interest rates of federally-backed loans.