Long-considered a standard in the mortgage industry, a conventional home loan is just what it sounds like, a “standard” or “normal” loan. Conventional mortgage loans are the most common loan that home buyers secure when purchasing a new home.
If you’re thinking about applying for a conventional mortgage, here are some pros and cons to evaluate:
- If you have a strong credit report and a score in the mid 700s this could save you money in the long run with a competitive interest rate.
- Since a mortgage is a secure debt, meaning the lender can take your home if you default on payments, these loans are usually offered at lower interest rates than unsecured loans, such as credit cards.
- Equity builds faster because of the higher down payment (up to 20%) you’ll make upfront.
- Lenders may be more likely to be flexible with terms and conditions than with a government-backed loan like an FHA or VA loan which need to follow government guidelines.
- When you go for a conventional loan, your total debt plays into your approval. The actual eligibility amount may fluctuate, but expect to be denied if your debt to income ratio is more than 45%.
- If you’re not sure if you’ll be living in your home 10 years from now, it may not be a good option since these are the kinds of loans that people pay off.
- If you don’t meet the minimum down payment requirement, you may have to pay for private mortgage insurance (PMI).
- While the lending decision is completely in the underwriter’s hands, if you’ve had a previous foreclosure or bankruptcy, it can likely decrease your chances of getting a conventional loan approved.
If you’re still not sure a conventional mortgage would best meet your needs you should consult with a lender. Feel free to reach out if you need a referral!