When purchasing a home, one of the most important decisions you will make is selecting the right mortgage. Among the various loan options available, a conventional mortgage remains one of the most popular choices.
A conventional mortgage is a home loan that is not insured or guaranteed by the federal government, unlike FHA, VA, or USDA loans. Instead, it is backed by private lenders and typically follows guidelines set by Fannie Mae and Freddie Mac.
Lower Overall Borrowing Costs
One of the primary advantages of a conventional mortgage is the potential for lower borrowing costs over the life of the loan. Borrowers with strong credit scores often qualify for lower interest rates compared to government-backed loan programs. Additionally, while some loans, such as FHA loans, require mortgage insurance for the entire loan term, conventional mortgages allow borrowers to remove mortgage insurance (MI) once they achieve 20% equity in their home.
Flexible Loan Terms
Conventional loans offer a wide range of term lengths, typically from 10 to 30 years, which can provide greater flexibility in structuring monthly payments. Borrowers can choose a shorter loan term to pay off their mortgage faster and save on interest, or they can opt for a longer term to lower their monthly payments.
Higher Loan Limits
For buyers looking to purchase higher-priced homes, conventional loans often have higher loan limits than government-backed loans. This can allow home buyers in competitive housing markets to finance more expensive properties without resorting to jumbo loans, which usually come with stricter qualification requirements and higher
interest rates.
More Property Options
Unlike government-backed loans that can have restrictions on property types and conditions, conventional loans can be used for a wider range of property types. Whether purchasing a single-family home, condominium, or investment property, buyers have more choices with a conventional mortgage.
Fewer Restrictions for Sellers
In competitive real estate markets, sellers often prefer buyers with conventional loans. This is because conventional loans can have fewer potential hurdles and a faster closing process compared to government-backed loans, which could require additional property inspections and appraisals.
Ability to Avoid Mortgage Insurance
While FHA loans require mortgage insurance premiums regardless of down payment size, conventional loan borrowers who can afford a 20% down payment can avoid MI altogether. This can lead to significant long-term savings, making home ownership more affordable over time. A conventional mortgage offers numerous advantages, particularly for home buyers with strong credit and sufficient savings for a down payment. With lower borrowing costs, flexible loan terms, and fewer restrictions, this type of loan provides a practical pathway to homeownership.
Download our app for even more features like secure mobile document scanning and payment calculation.
