Conventional mortgages are the most popular form of home financing for buyers in the United States. However, it may not always be clear how these loans differ from other loans, such as those provided by government agencies. To help you gain a better understanding of conventional loan basics, here is a quick guide with further information:
When obtaining conventional financing, your lender will examine your financial situation. The loan officer may request information including your credit score, income statements and debt to income ratios.
A down payment is required for conventional loans. Each lender has different minimum requirements, but the larger the down payment, the less money you’ll have to pay back over time.
Many believe a 20% down payment is required for conventional loans, but the minimum requirement is typically much lower. You can find mortgages with minimum down payment requirements anywhere from 3% to 20% of the overall purchase price.
Your choice of down payment amount can affect the terms of your mortgage, like interest rate or the need for private mortgage insurance.
Government-backed home loans have specific features to suit some homebuyers.
The Federal Housing Administration (FHA) is a government institution offering home loans for buyers who meet certain qualifications. Government-backed loans have advantages for those with bad credit or other financial roadblocks, but require other qualifications for approval.
Conventional mortgages tend to have higher interest rates than FHA loans, although these loans typically require borrowers to pay mortgage-insurance premiums.
Interest rates charged on a conventional mortgage vary by several factors, including the term and amount borrowed. However, interest rates are also subject to change every year based on the overall economy. Many buyers choose to wait for a period when interest rates are lower to apply for a mortgage, regardless of the loan type.
Ultimately, your choice of loan will depend on your personal circumstances. The more you know about different types of mortgage, the better equipped you’ll be for your journey into thefinancial real estate marketplace.
Experience the difference - personal ties and relationships turn a property into a home. Warm, professional relationships are a hallmark of the Compass experience, and my clients often remark on the quality of my carefully chosen network of financial, legal, logistical and other specialists. The high-quality network that I have fostered extends beyond the Bay Area to an international audience of potential home buyers and sellers through the Leading Real Estate Companies of the World and the firm's luxury home division known as Luxury Portfolio. My personal network combined with Compass market tenure and brand identity gives my clients a distinct advantage when buying or selling a home. My relationships open the door for my clients to be at home anywhere. Where people, homes, opportunity and a bit of imagination intersect, you'll find me at Compass.
