With so many different types of loans available, it’s difficult to know all of the options in order to make an informed choice on which mortgage is right for you. But it’s the biggest purchase of your life – don’t you want to know all of the options before making up your mind?
Conventional loans are essentially any loan that isn’t insured by the government. This means if the borrower defaults on their loan, the lender is at risk of losing money. Conventional loans are generally more difficult to qualify for than government-insured loans. People that usually qualify for a conventional mortgage possess three qualities: good credit, steady income and can afford the down payment.
It is possible to qualify for a conventional loan without putting 20% down. However, lenders generally require those borrowers to purchase Private Mortgage Insurance. Lenders require this to protect themselves in case the borrower defaults.
These mortgages come in a variety of sizes and terms, including fixed- and adjustable-rate loans, and generally conform to the industry standards set by Fannie Mae and Freddie Mac. Conventional loans are also known for having a speedier approval process, making them ideal for borrowers that need a loan quickly.
Government-insured loans, or non-conventional loans, are exactly what they sound like: loans insured by the government. Popular government-insured mortgages are FHA and VA loans.
They are typically easier to qualify for, with lower down payment and credit score requirements, making them a perfect solution for those that can’t qualify for a conventional loan. In addition, they generally have lower closing costs than conventional loans. All of these factors make government-insured loans an ideal choice for first-time homebuyers.
While they do offer borrowers more flexibility, they often have higher interest rates than their conventional counterparts. Most government-insured loans also require borrowers to purchase mortgage insurance with the exception of VA loans.
Both conventional and government-insured loans have positive and negative aspects. It all comes down to which is best for you in your unique financial situation. You should never rely on a friend’s recommendation, as their situation may be vastly different from yours. Always consult a mortgage professional when making this decision and, as always, we would be happy to answer any questions you may have. Click here to email Brent today!