Conventional Loans

A great alternative from FHA financing would be seeking into a conventional loan. Borrowers looking to purchase with a low down payment can borrow up to 95% from the value of the home. This program is available for first time home buyers or retirees, and assists borrowers that are purchasing larger homes. They also include no reserve requirements for one unit properties. The down payments are less than 20% which require mortgage insurance. Investments in second homes are also available. However, this includes having at least 10% of down payments towards the home’s price. With a conventional loan there is no MI (mortgage insurance) required, as long as the borrower can come up with a 20% down payment. Competitive fixed rates are also available for 30 and 15 year terms. Two important factors are the term of the loan and the loan-to value ratio, which are the following: 95% LTV with a 30-year term, 90% LTV with a 30-year term, 85% LTV with a 30-year term, and 80% LTV with a 30-year term. The loan-to-value can be lower than 80%. It can be whatever allows the borrower to feel contented. If the loan-to-value is higher than 80%, lenders require that borrowers pay for a private mortgage insurance. The term of the loan can be longer or shorter, depending on the borrower's qualifications. A conventional loan is a mortgage in which the same principal and interest payment is paid every month, from the beginning of the loan to the end of the loan. The last payment pays off the loan in full. If the buyer does not want to go with a loan-to value conventional loan, they have the option of going with an adjustable-rate conventional loan. An adjustable-rate conventional loan means the loan is adjustable, it can fluctuate. Some loans are fixed for a certain amount of time, and then they can become an adjustable-rate loan. Here are examples of the three most frequently used types of adjustable conventional loans: a 3/1 ARM, which is a loan that is fixed for 3 years, and then it begins to adjust for the remaining 27 years. Then there is a 5/1 ARM which is a loan that is fixed for 5 years, and then it begins to adjust for the remaining 25 years. Last but not least, there’s the 7/1 ARM loan. This loan is fixed for 7 years, and then it begins to adjust for the remaining 23 years. Adjustable- rate loans are great for borrowers with a high income. Here are some features that are included when considering an adjustable-rate loan: The initial interest rate is lower than the rate of a fixed-rate loan. There is also a maximum amount the loan can adjust over the life of the loan. This is known as a cap rate. Also, the interest rate is determined by adding a margin rate to the index rate. Adjustment periods can also be monthly, whether it’s every six months, or every year. The significant difference between a conventional loan and other mortgage types is the fact that a conventional loan is not made nor ensured by a government entity. Over the years, conventional loans have become one of the safest types of loans to use when purchasing a new home.