What is a conventional mortgage?

Cape Coral & Florida Real Estate Trends
June 28, 2019
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What is a conventional mortgage?

The advantages of conventional mortgages

As defined by the website Investopedia, a conventional mortgage or loan is:

Any type of home buyer’s loan that is not offered or secured by a government entity, such as the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA) or the USDA Rural Housing Service, but instead is available through or guaranteed by a private lender or the two government-sponsored enterprises, the Federal National Mortgage Association (Fannie Mae)and the Federal Home Loan Mortgage Corporation (Freddie Mac).

Conventional mortgages are the the most common type of mortgage loan. In the US, two-thirds of mortgages that are issued are conventional loans.

Interested in a conventional mortgage loan? Get started today with Mortgage in a SNAP!

The Advantages of a Conventional Mortgage

While all the other programs may get more press, the more strict requirements for conventional mortgages gives home buyers a head start over other buyers who have lesser qualifications.

Homeowners with good credit and money for a larger down payment could avoid paying upfront mortgage insurance or monthly mortgage insurance like an FHA loan. There are several reasons why a conventional mortgage loan could be the best option for your next home purchase.

  • Faster Loan Underwriting
    Conventional loans can require less paperwork and can be obtained more quickly than government-insured loans. Mortgage lenders can approve conventional loans without the typical delays incurred with FHA or government-backed loans. Also, with a conventional loan, sellers do not face an exhaustive FHA inspection, which sometimes then requires time-consuming repairs.
  • More Options
    Conventional loans come in all different types and sizes. Do you want a 10 year fixed mortgage? Looking for an adjustable 7-year term. If so, a conventional loan is the only place to find these options.
  • Optional Escrow Accounts
    A conventional loan also usually offers an option to pay taxes and insurance directly, without adding them to your monthly mortgage payment through an escrow account. If you want the flexibility and freedom to pay taxes and insurance separately, a conventional mortgage is your only option.
  • Security
    Conventional mortgages are usually fixed-rate products, meaning that once an interest rate is locked in, the borrower will keep that same payment for the life of the loan. Borrower’s payments stay the same month to month, whether interest rates climb or housing prices fall. Even if interest rates fall far enough to make refinancing tempting, borrowers have the flexibility with a conventional mortgage because they have already met the tough requirements to get the mortgage.

Summary

Here is a summary of the advantages, and also disadvantages, of conventional mortgages.

Advantages

• Mortgage insurance not required if 80% loan to value (LTV) or less
• Cancel existing mortgage insurance at 80% LTV
• Can be used on all property types
• More loan program options
• Can hold numerous conventional loans
• No maximum loan limit

Disadvantages

• Higher down payment requirements
• Higher credit score requirements
• May be more difficult to qualify for than FHA or other government-backed loan
• Mortgage insurance still required for loans above 80% LTV

Get Your Conventional Mortgage Started at Mortgage 1 

If you are considering a conventional mortgage, you can start the process by calling us at (866) 532-0550 or using our Mortgage in a SNAP application.

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