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Facts to Know About Conventional Mortgages

23 July 2021

Eva Kennedy

Do you hope to buy a house soon? If so, you should begin working on getting a mortgage loan through a lender. When you start looking at loan options, you might notice that you can choose from many types. One option is a conventional mortgage. Conventional mortgages are common loan types, and here are some facts to know about them before applying.

They Do Not Have Government Backing

The first thing to know about conventional loans is that they do not have government backing. In other words, the government does not fund or insure these loans. The banks take risks when offering them. As a result, getting a conventional loan might be more challenging than getting other loan types. The main reason is that banks have more risks with issuing conventional loan types compared to other types.

They Require a Down Payment and a Decent Credit Score

The next fact to know about conventional loans is that they require a down payment and a decent credit score. Every lender sets its own rules relating to credit score requirements, but you can expect a lender to require a score of at least 620 or higher. You will face fewer challenges getting approved if you have a great credit score compared to a low score. The down payment requirements also vary, but you should expect to need at least 3% of the home's purchase price. If you can put more down, you will benefit in several ways.

They Might Require Private Mortgage Insurance

Conventional loans that banks issue often require private mortgage insurance (PMI). PMI is something the borrower pays for the bank's protection. You will likely only have to pay PMI if you put less than 20% down on the house purchase.

They Offer Options With Terms

Finally, you should know that you can choose from many term options. First, you can choose between a fixed interest rate and an adjustable rate. Secondly, you can choose the duration. If you want a shorter loan, you can choose a 15-year loan. If you want a longer one, you can choose a 30 or 40-year loan.

A conventional loan is a common loan type that most lenders offer. If you feel that you meet the requirements to qualify for one, you might want to look for a lender that offers them. Once you find a lender, you can apply for the loan.

Talk to a lender if you have any questions.

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