Americans have a couple of mortgage options when it comes to making their dream of owning a home come true. And one of those is obtaining a conventional mortgage.
Homebuyers are faced with a number of decisions when buying a home. Everything from the amount of rooms in the new place to what color you want to paint the walls can all seem like daunting questions to answer. Another one will be what type of mortgage you want to obtain, whether it's a conventional or FHA loan. Savvy homebuyers will brush up on the difference between these two options, and assess what is the best fit for them.
What is a conventional mortgage? A conventional mortgage is underwritten and insured by a private lender and is one of the most popular ways in America to own a home. Unlike FHA or Department of Housing and Urban Development loans, conventional loans are not backed or insured by the federal government. As a result, the lending requirements for conventional mortgages are different, because with the other types of loans, the government acts as a safety net if the borrower were to happen to default on their mortgage.
The disadvantages of conventional loans. While both conventional and FHA loans are great products for any homebuyer, they both have their drawbacks. Conventional mortgages are harder to qualify for than loans backed by the federal government and come with a higher down payment. For those who do not have pristine credit, they will likely not be able to obtain a convention loans. However, those who qualify will reap the benefits of obtaining a loan on their own merit.
The advantages of conventional loans. There are a number of benefits when in conventional loans when compared to FHA home loans.
- You can avoid FHA loan insurance if you are able to put 20 percent or more down on the home.
- Larger down payments force a buyer to put more money down, allowing them to have more equity in their homes at signing when compared to FHA loans.
- Since you already qualified for the stricter standards of conventional loans, a refinance will be easier to come by down the road.
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