Buying a home is a big step in anyone's life but knowing the right type of loan program to go with or even understanding all of the options available can be tricky. One of the most common loans is the conventional loan. With over half of the mortgages today making up conventional loans, it is important to know what makes them stand out and why buyers should consider the program. There are a lot of things to consider when buying a home and choosing the right mortgage program is one of them that can make your home buying experience great or a nightmare.
The Basics of Conventional Mortgages
Conventional loans are becoming more and more popular every day because of the flexible guidelines that come with them as well as the low interests rates in the market. One thing to understand about conventional loans is that they are not backed by the government like many other loan products on the market. Instead they are backed by Fannie Mac and Freddie Mae. These two agencies have standardized the area of mortgage lending in the U.S. The conventional loan program is one that is desirable by many in the market, especially those that have good credit as well as a down payment to put towards the home.
While many people think that 20 percent down is needed for a conventional loan, this is actually a myth. While a standard conventional loan does require 20 percent down, there are other popular options within the conventional loan family that allow for less. Some to note include the piggyback loan that allows for 10 percent down, the HomeReady program that allows for 3 percent down, and the Conventional 97 which also allows for 3 percent down.
These are actually very popular today and make up a good amount of conventional loans in the market. In order to qualify for a conventional loan, buyers will need to meet the set expectations and requirements set forth by Fannie Mae and Freddie Mac, which can change over time.
The Benefits of Conventional Mortgages
In many ways, conventional mortgages are less restrictive than other types of loan programs. However, one area that is the same is the length of time you get your mortgage for. You have the option of different term lengths such as 10, 15, 20, 25, and even 30 year terms. The way these terms are set up is when you have fewer years for the loan, your monthly payment will actually be larger to make up for the lower amount of time for payments.
The 3 year option usually comes with low fixed interest payments for the lifetime of the loan. Some options also come with shorter and adjustable rates for the term of the mortgage. The interest for these tend to be lower at first and are a good idea for buyers who know they will not be in the home for long. These adjustable rates are fixed for a set period of time which can range from 3 to 7 years. This allows for buyers who are buying for the short term, in communities like Westchester and elsewhere, to actually save thousands on the lower interest rate in the beginning.
However, staying in the home can be a gamble because the rate will eventually adjust and there is no way of knowing if it will go down or up. Lastly, there are not upfront mortgage insurance fees with these loans if less than 20 percent is put down like there are other loan options. Knowing your options allows you to make the right decision and for many the conventional mortgage is one of the best.