Comparing home loans can be daunting, and it’s easy to get lost in the process, especially if you’re a first-time borrower. Like many, you may have difficulty choosing between an FHA or a Conventional home loan. Did you know that Conventional loans are the most common type of home loan? In fact, over 75% of all new home sales in 2021 were financed by Conventional loans. Read on to learn if this popular home loan is the right option for you.
What is a Conventional Home Loan
Conventional home loans are funded by private lenders such as banks and credit unions, thus providing you with the best possible home loan terms. These loans require higher credit scores and lower debt to qualify. If you can meet these stricter qualification guidelines, you can reap the benefits of Conventional home loans.
Is your credit score where it needs to be?
You can qualify for a Conventional home loan, if you have a credit score over 620. You can improve your credit score by having a relatively low revolving credit card balance. Automobile loans, student loans, child support payments, and alimony are a few ongoing debts that will be evaluated. These debts contribute to your Debt‑To‑Income (DTI) Ratio, which lowers the amount you can qualify for in a home loan. You can use a Debt‑To‑Income Calculator to estimate your DTI. You may want to consider a Federal Housing Administration (FHA) Loan, if you have less than a stellar credit score.
Save on the Lifetime Cost of your Conventional Loan
Conventional loans can require as little as 3% down to qualify. However, keep in mind that you will be required to pay for monthly Private Mortgage Insurance (PMI) if you have less than a 20% down payment. You can remove PMI as soon as your home equity reaches 20%; however, if you are able to put 20% down, you can avoid paying this additional PMI in the first place. On the other hand, you can not opt-out of Mortgage Insurance Premiums (MIP) with a Federal Housing Administration (FHA) loan.
Conventional Loans Open Many Doors
Conventional home loans give you more flexibility, as you can purchase a primary home, secondary home, or investment home. You can also purchase higher-priced homes with a Conventional home loan. In contrast, you can not use an FHA home loan for a second home, and as of 2022, Fresno County FHA Loan limits are $420,680, whereas Conventional loans can cover up to $647,200. If your home purchase price exceeds this limit, you may want to consider a Jumbo loan.
Speak With a Home Loan Expert
A Conventional home loan may be for you if you want to purchase a second home, have excellent credit, or would like to lower the lifetime costs of your mortgage. Granville Home Loans Officers can guide you in choosing the perfect home loan from FHA, Conventional, VA, Jumbo, and more. We believe every person is unique, and your home loan should be too. Contact a Granville Home Loan Officer to apply for a Conventional Home Loan today.