Unlike FHA loans, conventional mortgage loans are NOT insured through government programs. Instead, conventional loans have a separate set of funding criteria and are backed by Fannie Mae and Freddie Mac.
Who is conventional financing for?
Traditionally, conventional loans suit the needs of Westminster homebuyers who have strong credit and can afford a higher down payment.
Advantages of conventional financing
- Unlike FHA loans, conventional loans do not include upfront mortgage insurance premiums. Conventional Westminster borrowers also have the ability to get rid of PMI once they reach 20% equity in their home, whereas FHA loans do not offer the option to remove PMI.
- New low down payment options. While FHA loans are attractive for their low down payment options, Fannie Mae and Freddie Mac announced a new conventional loan program that allows homebuyers to purchase a house for as little as 3% down. Geared toward homebuyers who want the benefits of a conventional mortgage but lack the resources to save for a large down payment, this 3% down payment program reduces the upfront cost of purchasing a home.
- Flexible terms. With conventional financing, homebuyers have the convenience and flexibility of choosing between several repayment options, including the ability to have a fixed or adjustable rate mortgage, as well as a 15, 20 or 30-year term.
- Conventional loans can be used to finance practically any Westminster property. Some types of properties aren’t approved for FHA financing. Conventional loans are accepted for just about any property.
Drawbacks to consider
- Stricter lending guidelines. Historically, conventional loans tend to have tougher standards when it comes to lending guidelines and requirements. This typically includes higher credit score criteria and income requirements.
- While the rates for conventional mortgage loans have been historically lower than FHA rates, we’re currently experiencing record interest low rates across the board. This should excite anyone who’s thinking about buying a home. Plus, as mentioned above, the additional mortgage insurance premiums associated with FHA financing may actually cancel out any cost-savings.
- Mortgage insurance is required for loans with a down payment of less than 20%. While this may be the case, conventional borrowers can remove PMI payments once they obtain 20% equity in their home, whereas FHA borrowers do not have this luxury.
The key thing to remember when shopping for mortgage loans is to evaluate all of your options. There’s more to it than getting a great low rate! Be sure to work with an Westminster mortgage lender that has your best interest at heart and will work with you to find a mortgage loan that fits your financial needs.