Conventional Loans

What are conventional mortgage advantages?

Like most loans, you have an option about how long you will be paying your mortgage.

Conventional loans come in 15, 20, 25, and thirty-year terms. Some lenders even offer 10-year conventional loans.

The shorter your loan term, the higher your monthly payment. Fortunately, a loan term of 30 years still comes with low fixed interest payments that help home buyers budget and cover the other costs of home ownership.

Conventional loans are also a smart choice for those who know they won’t remain in their house long and want a shorter-term, adjustable-rate mortgage. This option comes with a lower interest rate than that of a fixed-rate loan.

Adjustable rates are in fact fixed, but only for a period of time – usually 3, 5 or 7 years. During that initial “teaser” period, the homeowner pays ultra-low interest and can save thousands.

The glitch here is that if they don’t sell at the end of the loan’s life, the rate adjusts — maybe down, but also maybe up. It’s a gamble that they should discuss with their lender and financial advisor.

Another advantage to conventional loans is the lack of an upfront mortgage insurance fee, even if the buyer puts less than 20 percent down.

FHA loans, plus USDA mortgages and even VA loans require an upfront “funding fee” usually between 1% and 4% of the loan amount.

Conventional loans are actually the least restrictive of all loan types, in some respects.

Conventional loans only require a monthly mortgage insurance fee, and only when the homeowner puts down less than 20 percent. Plus, that mortgage insurance cost is often lower than that of government-backed loans.

Conventional loans are actually the least restrictive of all loan types, in some respects.

USDA loans require the property purchased to be in a designated rural area. This is fine for those who live and work in suburban and rural locations. However, for those in major cities, a USDA-eligible home could extend commuting distance beyond what is reasonable.

VA loans are exclusive to current and former military service members. They offer a lot of benefits, like zero down payment and no monthly mortgage insurance. But they are not available to the general population.

FHA loans are a powerful home buying tool, but can come with high upfront and monthly mortgage insurance fees that are payable for the life of the loan — up to 30 years. The only way to cancel FHA mortgage insurance is to refinance out of the FHA loan. This can incur additional costs.

First-time and repeat buyers can land a good value when they choose a conventional loan for their home purchase. And, more buyers qualify for this loan than you might expect.