Benefits of a Conventional Loan

What are some of the most common benefits of a Conventional Loan?

A Conventional Loan offers many benefits, including competitive interest rates, no automatic mortgage insurance requirement when you put down a  20% down payment, and flexible loan terms. Additionally, Conventional Loans have no funding fee, no prepayment penalties, and fewer property restrictions, making them a popular choice for homebuyers.

Because they are not backed by a government agency, like some other loan types,  generally have fewer restrictions on them than government-backed loans. This allows lenders to offer their borrowers more flexible terms, features, and benefits.

Conventional loans offer competitive interest rates

Conventional Loans often offer competitive mortgage interest rates, which can result in significant savings over the life of the loan. This makes them more affordable for borrowers compared to government-backed loans. Interest rates are dependent on many factors including your credit score. A higher credit score puts you in a better position to qualify for a lower interest rate.

Conventional loans do not automatically require mortgage insurance up front

Unlike FHA loans, Conventional Loans do not require mortgage insurance if the borrower makes a down payment of at least 20%.

If you end up putting down less than that for a down payment, Private Mortgage Insurance (PMI) can still be canceled once you’ve reached 20% equity in your home. This can save hundreds of dollars in monthly payments, making the loan more affordable.

Conventional loans have flexible loan terms

Conventional Loans offer a variety of terms, including Fixed-Rate and Adjustable-Rate Mortgages (ARMs) as well as different term lengths like a 15-year mortgage and a 30-year mortgage. Fixed-Rate Mortgages provide stable monthly payments, while ARMs offer lower initial rates, making them suitable for those planning to sell or refinance before the rate adjusts.

Conventional loans have flexible loan limits

Jumbo Loans, a type of Conventional Loan, have no specific limits, making them ideal for high-value properties in expensive markets. While they may have stricter requirements, they provide the necessary financing for luxury homes.

Conventional loans do not require a funding fee

Conventional Loans do not have a funding fee, which is a significant additional cost associated with government-backed loans like VA and USDA loans. This reduces the overall cost of the loan.

Conventional loans have fewer property restrictions 

Conventional Loans are more flexible and can be used for a variety of property types, including investment properties and second homes, without the property restrictions found in government-backed loans.

Conventional loans may have a faster loan approval process

The approval process for Conventional Loans can be faster and simpler than government-backed loans. Private lenders have more control over the underwriting process, leading to quicker decisions and closings, which can be particularly helpful in competitive markets.

Conventional loans have no prepayment penalties

Many Conventional Loans do not have prepayment penalties. This can allow borrowers to pay off their loan early without having to pay a prepayment fee. This flexibility can be helpful for borrowers who expect to have extra funds in the future that they would like to put towards paying off their mortgage early.

Conventional loans offer many refinancing options

Conventional Loans allow various refinancing opportunities, including rate-and-term refinances and cash-out refinances. These options may help borrowers to secure a lower interest rate, change the loan term, or access the equity they’ve built up in their home. Refinancing often has its own set of requirements, so your options will vary based on your unique circumstances.

Conventional Loans offer a range of benefits, from competitive interest rates and no mortgage insurance requirements to flexibility in loan terms and no prepayment penalties. Whether you’re a first-time homebuyer, or a seasoned homeowner looking to invest, buy a second home, or refinance a current mortgage, a Conventional Loan can be a valuable tool in achieving your financial goals.