Conventional Home Loans
Conventional home loans are a type of mortgage that conforms to established guidelines for the size of the loan and your specific financial situation. These mortgages are offered by banks and are not insured by the federal government. Conventional home loans are the most commonly used and most widely known loan types and often feature lower interest rates compared to jumbo, FHA or VA home loans.
Conventional mortgages often require less documentation than FHA or VA home loans, which could speed up the overall processing time. This is important if you’re trying to get approved for a home with multiple bidders.
Most Common Types of Conventional Home Loans
FIXED-RATE: If a loan is “fixed-rate”, that means that the interest rate won’t change for the life of the loan, which protects you from the possibility of rising interest rates. Monthly payments on a conventional fixed-rate mortgage remain the same for the life of the loan, making it an attractive option for borrowers who plan to stay in their home for several years. Conventional fixed-rate mortgages typically offer a lower interest rate and APR than other types of fixed-rate loans.
15 AND 20-YEAR FIXED-RATE MORTGAGES: With a shorter loan term and lower interest rate, a 15 or 20-year conventional fixed-rate mortgage can help you pay off your home faster and build equity more quickly. However, your monthly payments will be higher than with a 30-year loan.
The 15 and 20-year fixed-rate mortgages are especially popular for refinancing. This is a great option for people who can afford a little bit more each month and are looking to invest in their future financial flexibility.
30-YEAR FIXED-RATE MORTGAGES: The 30-year conventional fixed-rate mortgage has long been popular due to its fixed interest rate and lower monthly payments. However, because the interest payments are spread out over 30 years, you’ll pay more interest over the life of the loan than you would on a shorter-term mortgage. This can be a great way to get into a nicer home than you might otherwise and/or if you are planning on living in the same area for a while.
ADJUSTABLE-RATE MORTGAGE (ARM): The alternative to the fixed-rate mortgage is the adjustable-rate mortgage (ARM). These home loans feature lower monthly payments during the first few years. While many prefer the security of a fixed-rate loan, an ARM may be an option – especially if you know you’ll be moving within the next several years.
Benefits of Conventional Home Loans
- With a fixed-rate loan, your monthly payments will stay the same for the life of the loan – no surprises.
- A conventional fixed-rate home loan usually offers lower interest rates than other types of fixed-rate loans.
- Conventional loans typically won’t require mortgage insurance payments.
- There are generally more financing options (terms, prepayment, etc.) within conventional home loans than with other loan types.
If you are interested in a conventional loan or if you’re not sure which type of loan would be best suited for your financial situation, give us a call! We can discuss all of your home loan options and help you make a more educated decision.