Section 3: Conventional Loan Benefits

Conventional Loan Benefits

While all the other programs may get more press, the stricter requirement for conventional mortgages gives home buyers a head start over other buyers who have lesser qualifications.
Homeowners with good credit and money for a larger down payment could avoid paying upfront mortgage insurance or monthly mortgage insurance like an FHA loan. There are several reasons why a conventional mortgage loan could be the best option for your next home purchase.
  

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1. Faster Loan Underwriting

Conventional loans can require less paperwork and can be obtained more quickly than government-insured loans. Mortgage lenders can approve conventional loans without the typical delays incurred with FHA or government-backed loans. Also, with a conventional loan, sellers do not face an exhaustive FHA inspection, which sometimes then requires time-consuming repairs.

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2. Flexibility

Conventional loans come in all different types and sizes. Do you want a 10-year fixed mortgage? Looking for an adjustable 7-year term. If so, a conventional loan is the only place to find these options. In addition, you have the optional for an escrow account. A conventional loan also usually offers an option to pay taxes and insurance directly, without adding them to your monthly mortgage payment through an escrow account. If you want the flexibility and freedom to pay taxes and insurance separately, a conventional mortgage is your only option. Lastly, if security is important to you then a conventional loan might be a good option for you. Conventional mortgages are usually fixed-rate products, meaning that once an interest rate is locked in, the borrower will keep that same payment for the life of the loan. Borrower’s payments stay the same month to month, whether interest rates climb, or housing prices fall. Even if interest rates fall far enough to make refinancing tempting, borrowers have the flexibility with a conventional mortgage because they have already met the tough requirements to get the mortgage.

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3. Down Payment

Although a conventional loan is not typically seen as the best option for getting a low-down payment but if you are an excellent borrower this could be a benefit for you. The minimum down payment required for a conventional mortgage is 3%, but borrowers with lower credit scores or higher debt-to-income ratios may be required to put down more.

4. Private Mortgage Insurance (PMI)

If you put down less than 20% on a conventional loan, you’ll be required to pay for private mortgage insurance (PMI). PMI protects your lender in case you default on your loan. The cost for PMI varies based on your loan type, your credit score, and the size of your down payment.
PMI is usually paid as part of your monthly mortgage payment, but there are other ways to cover the cost as well. Some buyers pay it as an upfront fee. Others pay it in the form of a slightly higher interest rate. Choosing how to pay for PMI is a matter of running the numbers to figure out which option is cheapest for you. The nice thing about PMI is that it won’t be part of your loan forever – that is, you won’t have to refinance to get rid of it. When you reach 20% equity in the home on your regular mortgage payment schedule, you can ask your lender to remove the PMI from your mortgage payments. If you reach 20% equity as a result of your home increasing in value, you can contact your lender for a new appraisal so they can use the new value to recalculate your PMI requirement. Once you reach 22% equity in the home, your lender will automatically remove PMI from your loan.

 

 5. Competitive Interest Rates

As a conventional loan is seen as one of the strongest loans you can get with some of the strictest requirements, we often see the rate for this loan among the best for qualified borrowers. When we look at credit requirements conventional loans require a credit score of at least 620 but can allow for down payments as low as 3%.

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6. Lifetime Benefit

One of the most common misconceptions about the conventional mortgage program is that it's a one-time benefit. Borrowers who qualify for this loan can use this program over and over again, and the benefit never expires. 

7. Prepayment Penalties

With some types of loans, paying off a home loan before it matures results in a pre-payment penalty. This is because lenders miss out on additional opportunities to collect interest payments. The prepayment penalty is a way for financial institutions to recoup some of that money. Although this is the case it is rare to have a prepayment penalty on your loan when you work with Orbit Home Loans. 

8. Foreclosure

Conventional loans aren't backed by the federal government and typically require a minimum 620 credit score and 3% down payment to qualify. The conventional foreclosure waiting period is typically seven years, though it may be shortened to three years in extenuating circumstances.

9. Appraisal

One of the main requirements for a conventional loan is that the home must be appraised. The appraiser's job is to work out the property's actual market value. Usually, they do this by comparing the property with other, similar homes in the neighborhood that have sold recently.

10. Loan Limit

Loan limits are determined by your county and the conforming loan limits. Although conventional loan limits are very competitive it is important to have that discussion with your realtor and loan officer.

12. Funding Fee
 There is no funding fee for this loan product.

13. Assumability

Conventional loans cannot be assumed, for example, but FHA and VA loans can. Not just anyone can assume an existing mortgage. You still have to apply with the lender and qualify for the loan. You generally need to make a down payment when assuming a mortgage, and it may be larger than expected.

Common Questions on Conventional Loans

- Are Conventional loans better?

Everyone has unique needs for their buying situation. Although conventional loans are very competitive, they are not always the best choice for the consumer. Because of that we recommend you talk to your loan professional for your specific needs.

- Are there any benefits to sellers?

Conventional loan buyers have the lease restrictions when it comes to buying and is typically a sought-after product when looking at offers.

- What are Orbit Realty’s and Orbit Home loans benefits?

With Orbit Realty you and Orbit home loans you get the benefit of working with a team that is highly trained and qualified. Okay, maybe every company says they have that, but the truth is that only 10% of companies nation-wide have both a real estate and mortgage company combined and because of that we are able to be one of the most competitive lenders on the market. We are also able to pass savings onto you buy not having to change additional fees that you often see with other lenders. 

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