When considering mortgage loan programs, you have the option to apply for either a conventional loan or a government-backed loan. Government-backed loans, such as FHA, VA and USDA, are insured through the federal government. Conventional loans with a less than 20% down payment are insured through private companies and must conform to guidelines established by the Federal Housing Finance Association.
Conventional loans can require a substantial down payment. Typically, borrowers provide at least 5% down payment, though 3% down payment programs are possible for eligible borrowers. Borrowers with less than 20% down payment must pay private mortgage insurance until certain criteria is reached, such as paying down the loan balance to a specified amount.
Conventional loans must also meet certain credit and financial requirements. Mortgage Trust will pull the applicant’s credit report from the three major credit bureaus; both credit score, and credit history, will determine eligibility for a conventional loan. Higher credit scores can influence better interest rates—your Loan Officer will discuss this with you personally. Conventional loans also have specific debt-to-income ratio requirements, and applicant’s employment history, income and debt will be thoroughly examined to meet lender guidelines.
Conventional loan programs offer several repayment period terms—15, 20, or 30 years—with competitive rates for shorter terms. With a fixed interest rate loan, the interest rate remains the same for the life of the loan. Adjustable-rate mortgages are also an option. Here, the interest rate is tied to current market rates and changes periodically, depending on the program you choose. With this option, your monthly mortgage payment will go up and down accordingly.
Your Loan Officer will explain all these details in more depth. A conventional loan is a good option for home buyers with better credit, have enough savings for a down payment, and want to avoid mortgage insurance premiums.