A home purchase is a dream of many, but the price tag isn’t something everyone can afford. This is the reason why most homebuyers resort to home loans. Thankfully, one can now choose between the many types of mortgage options. If you’re going to buy a house soon with the help of a home loan, then one mortgage option to consider are Conventional Mortgages.
Conventional Mortgages are home loans with no ties with the government. This means the Federal Housing Authority does not back such loans like FHA loans as well as the Department of Veterans Affairs or VA loans. In short, conventional loans are offered by financial institutions with no government backing, whatsoever.
Understanding the pros and cons of a Conventional Mortgage can help you decide whether or not it is the right one for you. Consider the following perks and drawbacks of Conventional Loans Laredo before applying for a home loan.
Easy Application, Quicker Loan Results
While you still need to provide a substantial amount of financial information when applying for a conventional loan, they usually require a lesser amount of paperwork than other home loans. Since your lender is the only one who will decide to approve or reject the loan, you get quicker results.
Costs And Other Expenses
When approved of a conventional mortgage, one needs to settle the closing costs without rolling it into the home loan. The closing cost may also be higher since a private financial institution will set the fees. Some may also require other fees like application and processing fees.
Higher Immediate Home Equity
When you pay a 20% down payment, you automatically have higher home equity compared to paying lower than 20% down payment.
Recommended Read: Here’s how to tap your home equity safely
Higher Credit Score Requirement
Conventional mortgage lenders have different FICO score requirement, but most will need you to have at least 620 credit score. If you want to get approved for a home loan, aim for at least 620 and higher.
Avoid Private Mortgage Insurance With A 20% Down Payment
Like any other loans, you can skip the PMI fees if you choose a conventional mortgage and put down 20% down payment. This is why it would be better if you can save enough cash and pay at least 20% of the purchase price.
Automatic Termination Of PMI Fees
If you pay less than 20% down payment, you are to pay for monthly PMI fees. However, once you reach the 78% LTV which stands for Loan-To-Value ratio, PMI fees end automatically.
You can choose to pay your insurance and taxes directly with the help of an Escrow Account. You can also negotiate the rates with your lender, and they can offer you to choose between adjustable interest rates or interest-only options.
These are the advantages and disadvantages one needs to know when applying for a conventional home loan. Be sure to work with a competent mortgage broker, shop for lenders and consider other mortgage options before making your final choice.