Conventional Mortgage Loans

For those looking to purchase a new home or refinance their existing home, conventional mortgage loans remain the most popular option available. A conventional mortgage loan, simply put, is any loan originated and guaranteed entirely by the private sector. Non-conventional loans, in turn, originate through private lenders but are guaranteed or insured by the federal government. Potential borrowers with credit scores above 740 and sufficient cash reserves to offer a 5-20% down payment will find conventional loans best suit their financial objectives.

Since conventional loans are not guaranteed or insured by the federal government, they are usually priced a quarter- to a half-point higher than their non-conventional counterparts: A conventional loan with a 5% interest rate may have a comparable FHA equivalent at 4.75%. However, because the lending requirements are higher and these loans pose a lower risk to lenders, conventional loans have more lenient mortgage insurance requirements.

The private mortgage insurance (PMI) on a conventional loan may cost one-third as much as its non-conventional counterparts, such as the mortgage insurance premium (MIP) required on FHA loans. Conventional loans also allow PMI to be dropped once a borrower achieves 20% equity on the home. MIP, meanwhile, cannot be dropped until the borrower has made five years’ worth of mortgage insurance payments and paid down 22% of the original loan. And future rules will require MIP to be carried for the life of the loan!

The lower mortgage insurance demands of conventional loans more than compensate for the slightly higher interest rate.

And because conventional loans are not subject to HUD or VA lending guidelines, lenders can offer many unique, versatile loan products that are simply not available with non-conventional programs. From 5-year interest-only loans to 7/1 ARMs to 10-year fixed, borrowers searching for sophisticated mortgage products will find far more freedom in conventional loans programs.

The less-stringent lending guidelines of conventional loans mean less paperwork and fewer bureaucratic hurdles to clear. The application process is typically less demanding, less stressful, and much quicker. For purchases or refinances requiring a fast and seamless application process, a conventional loan is far more likely to fund on time.

The diversity of conventional mortgage loan products can also benefit borrowers with less-demanding financial situations. For example, while 30-year loans are extremely popular, some borrowers may find loans with shorter terms more attractive. By shortening the loan’s term, interest is given less time to accrue. Less money is spent on interest, principal is paid down faster, and PMI may be dropped sooner. However, monthly payments will be moderately higher.

Borrowers interested in learning more about conventional mortgage loan products should start by contacting us and consulting one of our knowledgeable mortgage loan officers.

Company NMLS ID # 1591 (; CO–Mortgage Company Registration, Churchill Mortgage Corporation, 104 S Cascade Ave. Ste. 201A, Colorado Springs CO 80903-5102, Tel 888-562-6200, Regulated by the Division of Real Estate
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