Conventional loans are safe, transparent loans that follow the rules that Freddie Mac and Fannie Mae put in place. Borrowers save more money on this loan than on an FHA loan. Conventional fixed-rate loans are ideal for anyone who wants to save money and know they are getting a fair deal. Conventional mortgage provides many benefits such as the following:
Ensures you Know what you are Getting Yourself Into
Loans that conform to the guidelines of Freddie Mac and Fannie Mae follow the rules. On these loans, things like negative amortization, prepayment penalties, and balloon payments are not legal. With these loans, you can be sure you know what you are getting yourself into. Conventional loans with a fixed rate provide you with peace of mind. You will know how much your interest rate and subsequent payment will be no matter the market conditions and what the current interest rates might inflate to.
Offers Lower Interest Rates
Conventional loans have competitive interest rates that reward borrowers with high credit scores lower rates. That is why you want to check your credit score and credit history before you decide to take out these loans. If your credit score is less than perfect, you will need to repair it and improve your score.
Provides Low Down Payment Options
With conventional loans, you can put as little as a 3 percent down payment to buy your home. But, it requires mortgage insurance that will increase the cost. However, unlike a government loan like an FHA loan, the mortgage insurance doesn’t have to last for the loan’s life. After getting enough equity in your house to reach the 80% LTV (loan-to-value ratio) threshold of the original appraised value or purchase price, you will no longer need mortgage insurance.
Lets you Save Money in a Shorter Term
If you wish to pay off your house quickly and save money on interest payments, you can choose a shorter term 15-20 year loan. You can even find lenders that provide as low as a 10-year term. Other options include 17, 22, 25, and 27-year terms. If you make bigger payments on a short-term loan, you can save thousands of dollars.
Let you Use the Loan for Different Kinds of Homes
You can use conventional loans for a variety of purchase types such as vacation homes, second homes, multi-unit dwellings, rental properties, and more. Government loans like the VA, USDA, and FHA should be used for buying a home as a primary residence.