What Advantages Do Conventional Loans Offer Homebuyers?
When financing a home, one of the most common options available to homebuyers is a conventional mortgage loan. Conventional mortgages are popular due to their flexibility, competitive interest rates, and wide range of benefits. These loans are backed by and available through different types of mortgage lenders, including banks, credit unions, and wholesale lenders. Government-insured loans, by comparison, are backed by a government institution. These include FHA loans and VA loans. Let’s explore the various advantages of conventional mortgage loans and why they continue to be a preferred choice for most home purchases and refinances.
- Flexible Loan Terms
Conventional mortgage loans provide borrowers with flexible loan term options, allowing them to choose the repayment period that best fits their financial situation. Common loan terms for conventional mortgages include 15-year and 30-year options, but LorMet’s lending partners offer terms anywhere between 8 to 30 years. Shorter loan terms typically come with higher monthly payments but result in substantial interest savings over the long run. Longer loan terms, on the other hand, offer lower monthly payments but result in higher interest costs. Use our loan payment calculator to estimate your monthly payments*. The flexibility of choosing the loan term enables borrowers to align their mortgage payments with their budgetary needs and long-term financial goals.
- No Mortgage Insurance (with Sufficient Down Payment):
One significant advantage of conventional mortgage loans, especially for borrowers with a substantial down payment, is the possibility of avoiding mortgage insurance. Typically, mortgage insurance is required for loans with a loan-to-value ratio (LTV) above 80%. However, if you can provide a down payment of 20% or more with a conventional loan, you can avoid this additional cost altogether. Unlike government-backed loans such as FHA loans, conventional loans allow borrowers to eliminate mortgage insurance once they reach a certain threshold of equity in their homes. This can lead to significant savings over time.
- Higher Loan Limits
Another advantage of conventional mortgage loans is the higher loan limits they offer compared to government-backed loans. Government-sponsored entities such as Fannie Mae and Freddie Mac establish loan limits that determine the maximum amount you can borrow through a conventional loan while still qualifying for certain benefits. In areas with higher housing costs, the higher loan limits of conventional loans may allow borrowers to finance more expensive properties.
- Simple Loan Process
The loan application and approval process for conventional mortgages is generally quicker and easier than that of government-backed loans. Conventional loans are not subject to the extensive documentation and stricter underwriting guidelines required by programs like FHA or VA loans*. This can result in a smoother and more streamlined mortgage application process, allowing borrowers to secure financing more efficiently. Additionally, conventional loans offer more flexibility in terms of property types, making them a viable option for various types of homes, including investment properties and second homes.
In conclusion, conventional mortgage loans offer numerous advantages for homebuyers looking for flexibility, competitive interest rates, and customization options. The possibility of avoiding mortgage insurance and the ability to customize the loan to fit individual needs are just a few of the benefits that make conventional loans an attractive choice. However, it is important to consider your specific financial circumstances and consult with a mortgage professional to determine the best loan option for your unique situation. With careful consideration, a conventional mortgage loan can provide the foundation for achieving homeownership and financial stability.
*All borrowers are subject to credit approval, underwriting approval, and lender terms and conditions. Programs are subject to change without notice. Some restrictions may apply. This is not a commitment to lend. A loan officer will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to your individual situation.