There are so many different kinds of loans out there. Some are more popular than others and for a valid reason.
If you are in the market for a house and you are looking for a loan, you are probably hearing about the different kinds of loans and mortgages that you can choose from. You have probably heard of conventional loans.
In this article, let us walk you through conventional loans and everything that you need to know about it.
What are conventional loans?
Conventional loans are loans that are not insured by or made by a government entity. It is a standalone loan with no government intervention. It is not part of any loan program such as the usual loan providers - the Department of Agriculture (USDA), the Department of Veterans’ Affairs (VA) loan program, or the Federal Housing Administration (FHA). Basically, it is an all-private loan between an individual and a private entity.s.
What are the kinds of conventional loans?
There are different kinds of loans and they are the following:
- Conventional Portfolio Loans - these types of loans are those without investors. There is usually just one lender and that lender can set the terms of the contract and the interest rates without intervention.
- Subprime Conventional Loans - these are conventional loans with the requirements for qualification set by the government. It is these requirements that make them subprime. They apply mostly for those with bad or questionable credit. Because of the leeway given to those who apply for this kind of loan, the rates are higher than usual.
- Amortized Conventional Loans - these are loans with no balloon payments and the individual pays the same amount from beginning to the end of the contract.
- Adjustable Conventional Loans - these are loans where the rate adjust based on the economy. They are set to a certain minimum but there is no set maximum rate so the rates can go as high as they can.
What are the advantages of getting a conventional loan?
Getting a conventional loan over others come with advantages such as the following:
- Conventional Loans give higher and faster home loan processing. Since you are directly dealing with the lender, there is bureaucracy and the process is more streamlined.
- Mortgage insurance premiums are easier to avoid with conventional loans. Because you have to pay a sizable downpayment, you can expect that mortgage insurance premiums would be easier to avoid.
- The interest rates are lower with a conventional loan. Because the individuals who qualify for a conventional loan are usually ones who have good credit standing and pose less of a risk to banks and lending agencies, the interest rates are relatively lower than the other loans.
- It is easier to compare lender fees with conventional loans. Private entities are very transparent and competitive when it comes to their rates so it is easier to compare lender fees.
How Do I Qualify for a Conventional Loan?
In order to qualify for a conventional loan, the individual should have the following characteristics:
- You must have enough money for a downpayment.
- You must be able to prove that you have stable income.
- A good credit score is needed to be considered for the loan.
Is A Conventional Loan The Right Loan For You?
A conventional loan is the type of loan with high standards. It requires a good credit standing and cash that you can use as down payment. If you think that you are good enough to obtain a conventional loan, the only thing that you should watch out for rate that you would get.
On this part, it is best to hire a mortgage professional and get professional advice before getting into processing that loan. A financial adviser can help you deal with matters and to help you get the best rates possible.
This is should be a prospective customer's number one call to action, e.g., requesting a quote or perusing your product catalog.