A conventional mortgage is a homebuyer’s loan made through a private lender. Compared to a Federal Housing Administration (FHA) loan, a conventional loan often offers a higher interest rate. It can also require a higher credit score to qualify.
Advantage of Conventional Loans
Conventional loans provide numerous benefits. To begin with, they typically feature greater flexibility in terms and lower interest rates when compared to government-backed loans. Moreover, conventional loans permit higher loan amounts, rendering them a suitable choice for financing more expensive homes.
You can potentially secure a standard mortgage loan with a down payment as minimal as 3%. Although conventional mortgages typically demand a larger down payment, certain borrowers might be eligible to buy a home with a down payment ranging from 3% to 5%. It's essential to be aware that opting for a lower down payment could lead to extra expenses, such as private mortgage insurance (PMI).
In order to meet the criteria for a conventional loan, typically, you should have a favorable credit score, typically exceeding 620, a consistent employment track record, and a debt-to-income ratio that is manageable. Additionally, various other factors, including your income, assets, and the assessed value of the property, will be taken into account. It's advisable to seek guidance from a mortgage expert to assess your eligibility since the specific requirements may differ.
You have a variety of options at your disposal to manage the closing costs associated with your conventional loan:
Seek "seller concessions" from the seller to assist in covering your closing costs. You can incorporate this request into your purchase contract while acquiring the property. It's essential to inform your real estate agent and mortgage expert of your intent to request seller concessions. Please note that the feasibility of this option may fluctuate depending on the current conditions of the real estate market.
You can opt to pay a slightly higher mortgage interest rate, and in return, the lender can contribute towards your closing costs. This practice is commonly referred to as "buying up" your interest rate.
Certain conventional home loan programs permit the use of gift funds from family members, employers, or close friends to offset your closing expenses. Notify your mortgage professional if you intend to employ gift money for this purpose.
Explore the possibility of accessing grants and forgivable loans through down-payment assistance programs. These programs are typically administered at the county or state level, and the criteria for eligibility may vary. Consult with your mortgage expert to determine whether any relevant down-payment assistance programs are available to you.
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Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advice from Andela Financial Services and the author. Do not rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely on this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there may be errors, omissions, or mistakes.