4 Reasons to Choose a Conventional Mortgage

Buying a home should be an exciting time. But for many home buyers, it can be confusing, especially when it comes to choosing the right mortgage loan. With so many options, it’s not always easy to know what type of mortgage is best for your goals and financial situation.

Generally speaking, there are two types of mortgages: conventional and government-backed mortgages. Unlike FHA, VA, or USDA loans, conventional mortgages are not guaranteed or issued by the federal government but are available through private lenders or banking institutions. Conventional mortgages typically require borrowers to meet a specific credit score requirement, although the minimum score cutoff varies by lender.

With lower interest rates and flexible payment terms, conventional mortgages are steadily growing in popularity, particularly among homebuyers with good credit who can make a sizable down payment on the home of their choice. Today, it’s estimated that around 50% of mortgages today are conventional mortgages. If you have a solid credit score and savings prepared for a down payment, a conventional mortgage may be a better option over an FHA loan. Here are some of the top reasons to choose a conventional mortgage when purchasing a home:

No upfront mortgage insurance premiums

Unlike FHA loans, conventional mortgages do not require an upfront mortgage insurance premium (MIP), an additional payment which is either due at closing or rolled into the total loan amount. Regardless of the down payment amount, borrowers using an FHA loan are required to pay this annual insurance premium to protect the lender in case the home buyer ever defaults on the loan. Since conventional loans aren’t backed by a government program, there is no upfront mortgage insurance fee required.

Low minimum down payment options

It’s a common misconception that conventional mortgages require home buyers to make a down payment of at least 20 percent. In reality, it’s possible to secure a conventional mortgage with as little as just 3 percent down. However, keep in mind that if your down payment is less than 20%, you will usually be required to pay a monthly private mortgage insurance fee on top of your monthly mortgage payment. For this reason, conventional mortgages are considered ideal for home buyers who can afford to make a sizeable down payment. Making a substantial down payment also lowers the amount you borrow on your home, ultimately reducing the amount you’ll pay over the life of the loan in interest.

Better Flexibility

Because conventional loans aren’t backed by a government program, these types of loans come with fewer restrictions and offer home buyers a higher level of flexibility. For example, conventional mortgages have terms options 10, 15, 20, or 30 years and are available in fixed rates or adjustable rates, making it easier to customize your loan to your goals and financial needs. And unlike government-backed loans, which can typically only be used to buy a primary home, conventional mortgages can be used to finance almost any type of property, including a primary residence, a second home such as a vacation property, or even an investment rental property.

Quick closing

When compared to government-insured loans, conventional mortgages are usually fairly straightforward to obtain, requiring less paperwork and “red tape” for approval. With multiple steps in the underwriting process, including appraisals, inspections, and multiple agency approvals, government-backed loans such as FHA loans may take longer to close than conventional mortgages. And because home buyers must meet require certain qualifications to obtain a conventional loan, such as a good credit score and minimum down payment, sellers sometimes view these buyers as less “risky” and may be more likely to accept their offer over another buyer using an FHA loan.

Ultimately, conventional mortgages offer home buyers greater flexibility and convenience in the financing process, without the extra fees that may be associated with other federally-backed loans. Still wondering which type of mortgage loan is right for you? At River City Mortgage, we’re here to help you explore your financing options so you can choose the best mortgage for your situation and goals.

Our licensed loan officers take time to tailor the mortgage experience to you, providing expert guidance so you can feel confident and comfortable throughout the entire home buying process. Contact us to get started today and learn more about your financing options.

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