Conventional Home Loan Requirements & Benefits

09.15.2020 | Category: Homebuying

With favorable mortgage interest rates and loan terms, ‘conventional loans’ or ‘conventional mortgages’ have been a popular choice for homebuyers. If you’re able to meet the down payment, income and credit requirements, conventional loans typically offer more flexibility and a wider array of loan programs and terms. Mutual of Omaha Mortgage offers fixed-rate and adjustable rate conventional mortgages to help you achieve your homeownership and financial goals.

What is a Conventional Mortgage?

A conventional home loan is a mortgage that’s not backed or insured by the government (VA, FHA and USDA loans are government backed or insured in part by the government). Many conventional mortgages are considered to be conforming loans, meaning that they meet the loan limits and guidelines set by Fannie Mae and Freddie Mac. In 2020, the conforming loan limit set by Fannie Mae and Freddie Mac in most areas of the country was $510,400, but it can be as high as $765,600 in high-cost areas of the country.

If you’re able to meet the income and credit requirements, conventional loans typically offer more flexibility and a wider array of loan programs and terms. By comparison, government loans are designed to bring homeownership within reach for Americans and often feature less rigorous lending requirements. But they may not have the same favorable lending terms that conventional mortgages feature.

Advantages of a Conventional Mortgages

Favorable Interest Rates - Because conventional home loans have stricter qualifying requirements compared to some of their government counterparts, conventional mortgages tend to have favorable interest rates, which can help you save over the life of your loan.

Affordability - With a conventional loan, you won’t have any program specific fees on your mortgage. You’ll still have to pay traditional closing costs and lending fees, but there aren’t any specific loan program fees for conventional loans. By contrast, FHA loans have an upfront mortgage insurance premium which adds to the overall cost of your mortgage loan.

Flexible property options available - One of the great things about conventional loans is that they can be used to purchase second homes or even investment properties. If the residence is not your primary, you may be required to put more down, but conventional loans offer financing options beyond a primary residence.

Avoid PMI with 20% down or more – PMI, or Private Mortgage Insurance, is required if you purchase a home with less than 20% down payment. This is an additional fee that is added into your monthly mortgage payment. If you’re able to put a 20% down payment or more on your new home purchase, you can avoid having to pay PMI.

Conventional Mortgage Options

One key decision that you’ll need to make is whether a fixed rate or adjustable rate mortgage is best to help you meet your financial objectives. Each has pros and cons that should be weighed as you work through the decision-making process.

Fixed-Rate Mortgages

If you plan to live in your property for more than 7-10 years, and you want stability on your mortgage payments, then a fixed-rate mortgage may be right for you. With a fixed-rate mortgage, your home loan interest rate will be locked-in for the life of the loan. This conventional loan package is geared heavily to homeowners looking to commit to a single property for the long haul and prefer interest rate consistency over playing market odds.

Adjustable-Rate Conventional Loan Packages

The adjustable-rate mortgage or ARM is a conventional home loan program in which the interest rate on your mortgage is fixed for a specified period of time, and then adjusts on an annual basis based on market conditions. Starting at 5, 7, or 10 years, the initial fixed rate period will expire on these conventional packages. After that fixed rate expiration date, the rate will adjust according to market conditions.

ARMs typically provide less stability than their fixed mortgage counterparts, but often offer borrowers lower interest rates at the beginning of the loan. If you’re only planning to be in your home for a short period of time or are looking to qualify for a larger loan amount, an ARM may be worth exploring.

To find out more about ARMs, take a look at our ARM – CHARM Booklet.

Conventional Loan vs. Jumbo Loan

Conventional conforming loans, unlike jumbo loans, do not adhere to the strict income, credit and employment qualifications of the jumbo program. Buyers with good-to-excellent credit, a strong and steady flow of monthly income and reliable employment can meet the requirements of conventional conforming loan. As conventional loans are inherently less risky than jumbo mortgages, buyers are not burdened with higher interest rates and monthly payments.

Contact Mutual of Omaha to Get a Conventional Mortgage

Thinking about buying a home in the near-future? Our mortgage specialists are ready to answer all your questions about conventional loan options and requirements. Call 1-800-24-RATES or click here to connect with our team about how we can help you achieve your goals.