With numerous programs out there meant to help buyers get the perfect mortgage situation for them and their families, it can be easy to forget about the simplest loan type out there: The conventional loan. This is the traditional loan many people think about when they first consider a mortgage, and it can be found in both fixed- and adjustable-rate formats.
At Primary Residential Mortgage, we’ll help you find the best mortgage loan and rates, whether it’s through a conventional program or another type. What are some of the benefits of the conventional loan?
No Private Mortgage Insurance
Part of the reason some folks resist the conventional mortgage is the fact that it’s known for requiring a 20 percent down payment upon purchase. This is a big expense for many buyers, and scares some away.
Two things here: Firstly, 20 percent isn’t always required (more on this later in our blog). Secondly, and perhaps most importantly, buyers have to realize there’s a trade-off here. If you can indeed afford the 20 percent down payment through smart savings, you will completely avoid having to take out private mortgage insurance – a requirement often put forth by lenders to protect themselves in case of default.
There are certain other types of loans that are only meant for a certain type of property – there are no such restrictions on conventional loans. They can be used for primary residences, rental properties, second homes or any property that requires a mortgage loan.
In many cases, conventional mortgage formats save money for homeowners during a refinancing situation. This is often the case even when those same buyers have previously used something like the FHA loan program – transitioning to a conventional loan brings a great rate while also eliminating mortgage insurance.
Surprising Qualification Thresholds
As we noted above, it’s something of a myth that you cannot obtain a conventional mortgage without a 20 percent down payment. Many conventional loans allow as little as three percent down, and while you will have to pay mortgage insurance if you can’t come up with 20 percent, there’s a kicker here: As soon as you reach 20 percent equity owned in the home, private mortgage insurance goes away. So even if you’re just a bit shy on the 20 percent figure, know that you won’t be stuck paying private mortgage insurance for long.