One of the myths of conventional loans, and this probably comes from our parents way of thinking, is that you have to have 20% down. It used to be that way. It's not anymore. Conventional loans are designed to help people from a variety of income backgrounds and budgets, but they do have some caveats to consider.
Conventional loans are not government-backed or insured by the government; they are private. A lot of times as loan officers, we have a little bit more discretion in what we can and can't do with these types of loans, but that's also because you do have to put money down. That mitigates some of our risk. And since we have that discretion, conventional loans can go a whole lot quicker and a whole lot smoother.
Interest rates are actually a little bit higher on a conventional loan, because it's a private loan. But the benefit is that if you can put 20% down, you don't have to have private mortgage insurance(PMI) and you don't have to have an escrow account. On all the government loans you have to have one, VA included. So in some cases, depending on how much you have to put down and your credit rating, a conventional loan could be a better option.
You can also be a first time home buyer and get a conventional loan with 3% down. Your mortgage insurance is going to be higher, but you can.
So who qualifies as a first time home buyer? Some people are surprised to learn that if you sell your home and you don't own one for three years, you are now classified again as a first time home buyer.
A few more benefits of a conventional loan are that they can be used for primary or secondary residences, and also for rental property where you don’t have to occupy the location. They can also be used for hotels, bed and breakfasts, or other types of properties that government backed loans don’t cover.
I’m committed, along with Innovative Mortgage Services, to providing a wide range of loan options for my clients. If your credit history is good and your income has been stable for a few years, a conventional loan may be the best fit for you. Contact me today to learn how I can help.
Michael Daugherty
NMLS ID 1233387
*Loan approval and terms are dependent upon borrower’s credit, documented ability to repay, acceptability of collateral property, and IMS underwriting criteria. USDA and VA loan programs allow 100% financing for those who qualify. USDA loans have location restrictions and income limits. For more information on RD loans, including RD eligibility, please visit http://www.rurdev.usda.gov/HSF-About_Guaranteed_Loans.html. VA loans require borrowers to have VA eligibility through Veterans Administration. For more information, please visit www.benefits.va.gov/homeloans.
