Since it’s called a “conventional” loan, you probably won’t be shocked to know that it’s the most common mortgage type in the U.S.
On paper, a conventional loan means that it’s not guaranteed or insured by the federal government, like VA and FHA loans are. Instead, the borrowers and the loan itself conform to federal guidelines set forth by the government, though it is sponsored by commercial enterprises, like Fannie Mae. That’s why you might also hear them referred to as “conforming.
Just because these mortgages aren’t insured by the government doesn’t necessarily mean they don’t need to be insured. If you plan on spending less than 20% of the value of the loan as a down payment, you’ll be required to purchase a policy from a private insurer, but these are typically less expensive than those offered by FHA.
Advantages:
- Conventional loans are flexible, offering the borrower many options for rate types (fixed or adjustable), length and down payment
- Rates are typically very competitive.
- Summit doesn’t charge pre-pay penalties, so borrowers can pay down their loans early, saving interest.
- Lenders must approve the borrowers and loans that meet the government-sponsored enterprise’s rules.
Disadvantages:
- There aren’t many disadvantages to conventional loans, but they’re harder to get since 2007, as the rules for who can qualify for this type of mortgage were tightened.
The Mortgages Diversified team at Summit doesn’t find anything “conventional” about our customers. Our team helps borrowers navigate the choices available to them in order to make sure they’re paying what they meant to pay and getting the terms that will suit their lifestyle both now and later in the years ahead. The flexibility offered by a conventional loan is certainly a great thing, but with it come a lot of tough choices. Let our knowledge guide you.