Borrowing money to purchase a property is a process with many requirements and options. A variety of home loan types exist to cater to the needs of different people, but what exactly are your choices? This article will help you understand the conventional loan option and when it could be a good choice for you.
What You Need to Know About Conventional Mortgage
- It Is the Loan Provided by the Private Sector.The primary difference between conventional and non-conventional loans is the backing behind the loan provision. Conventional loans are not maintained by the government, which means they are solely handled by the private sector, such as banks and other financial institutions.
- Note: The backing agency is responsible for insuring the loan amount and protecting the lender if the borrower can no longer repay their debt. When they have a strong backing, the lenders will feel less at risk. For this reason, they could offer lower interest rates or lower down payment requirements, which is not the case for conventional loans.
- It Requires a Good Credit Score. Undoubtedly, all lenders prefer borrowers with a good credit score, which means less risk for them. The good news is that many different lenders are now providing a more lenient means for people with problematic credit scores. Still, in a conventional mortgage, people with good credit scores have a better chance of getting loan approval. Usually, they require a score of 620 at the minimum.
- It Has Stricter Guidelines But More Flexible in Loan Terms. Since these loan providers are not backed by the government and have a higher risk of dealing with clients, they require a higher down payment as well. They might also offer a higher interest rate, but that will depend on many factors. Nonetheless, expect the loan setup to also range from 15 to 30 years. Despite the stringent program requirements, the conventional loan is still the most popular mortgage type in the US. It may be harder to qualify, but it offers more flexibility, such as in special requirements or geographic limitations.
What You Need to Get a Conventional Home Loan Approval
Before securing a conventional home loan approval, you must first be able to provide the following requirements.
- Proof that your income allows you to afford the monthly mortgage payment
- A verification that you have enough assets to make the downpayment and enough funds to pay for other life and home purchase expenses
- Proof that you have a stable and secure source of income
- A home appraisal to determine the actual value of the property you are looking into
Martha Walters of New Frontier Financial quoted “Different loan providers request various types of requirements. It is best to secure a complete list from your chosen lender before you start preparing your home loan documents.”
Your Mortgage Broker in Dallas and Houston Texas
Keep in mind that all borrowers get qualified on certain types of mortgages based on their financial profile. If you are a borrower with a strong credit history, low debt, and can contribute a down payment as requested by the lender, a conventional loan will be the best option for you. Also, do not forget that borrowing from a conventional mortgage comes with risk since the government does not back the loan. Still, all of your options have their benefits and downsides too. It would be best to understand what loan type fits your current situation the most.
To learn more about the conventional mortgage and your other loan options throughout the state of Texas, contact us at New Frontier Financial. We are your trustworthy Dallas home loan officers who can help you understand your financial choices better and assist you in finding the best home loan for your situation. Allow us to guide you through the entire process in a fast and easy way. Call us today at (469) 833-2090.