Conventional Financing
Conventional financing is perfect for:
Borrowers With Good or Excellent Credit
Borrowers Who Are Able to Put 3% Down
What Is Conventional Financing?
Conventional financing refers to a mortgage that is purchased by Fannie Mae or Freddie Mac and is not guaranteed by the federal government, unlike other programs such as FHA and VA Financing. Conventional loans are completely made in the private sector without any government involvement. You can use conventional financing to purchase or refinance single family to four family homes.
Types of conventional financing:
You’ll have the same interest rate and monthly payment for the entire repayment term, even long-term financing options such as a 30-year loan.
You’ll start off with a lower interest rate than the fixed-rate loan, but it will be adjusted from time to time, causing monthly payments and interest to change over time.
Conventional Financing
Advantages
If you are able to make a downpayment of 20% or more, choosing a conventional loan can allow you to avoid paying mortgage insurance completely (an average savings of $1000/year). However, if your downpayment is less than 20%, you’ll likely still be required to pay for PMI (Private Mortgage Insurance) with conventional financing. This type of loan also typically has a shorter processing time and fewer hurdles than a government-backed loan, and can save you time in the home buying process.
Disadvantages
If you can’t put down 20% upfront and are still required to pay PMI, your savings with conventional financing could be negligible. It may be better to choose a government loan such as FHA financing, which would allow you to put as little as 3.5% down. However, PMI may still be less than the extra insurance you would have to pay for an FHA loan. It’s important to talk to a loan originator to learn which financing option would be best for your specific situation.