Conventional Financing
What Is Conventional Financing And What Is The Difference Between
Conventional Financing And Non-Conventional Financing?
What Is Conventional Financing And What Is The Difference Between
Conventional Financing And Non-Conventional Financing?
CONVENTIONAL FINANCING
Conventional Financing is a home financing program that is offered by financial institutions or banks, which are not insured or backed by the government. It offers up to 97% of the home value as a loan. If you are looking for a lower monthly payment and ok with a longer loan duration this would be the route to choose.
NON-CONVENTIONAL FINANCING
On the hand, there is also non-conventional financing. Non-Conventional Financing are loans that are not based on your ability to repay. They are known as an IOU type, or an example would be money you owe on your credit card. They are unsecured loans which do not meet the requirements of the government entities.
CONVENTIONAL LOANS
They are the most common type of loan, accounting for approximately 60% of all mortgage applications. They are based on the buyers ability to repay the loan. It could be a bank loan, credit card loan or even a home mortgage loan.
These Conventional loans contain good rates, reduce costs, and also offer home buying flexibility. It is ideal for borrowers that can provide a larger down payment and also have good credit. It’s a quicker loan to obtain as it requires less paperwork than government insured ones.
Are Conventional Loans good? Lets take a closer look at the benefits:
-
They can be used to buy a primary residence, a second home or a rental property
-
As low as a 3% down payment
-
With a down payment of at least 20% there is no private mortgage insurance (PMI)
-
They have much lower mortgage insurance costs than FHA loans
-
Once the home equity reaches 20%, mortgage insurance is cancelable
Are you wondering how to get a Conventional Loan? Lets take a look at the Conventional Loan Requirements:
-
Credit score: Depending on the lender, the minimum credit score to qualify is from 620 to 640.
-
Proper Documentation: It is required to provide documentation that verifies your income, ability to pay debts, and spending habits.
-
Income and assets: Provide bank and investment account information so lenders can review statements to verify that you have sufficient funds to cover the down payment and closing costs.
-
Down Payments: You must be able to meet the minimum down payment amount. Be sure to check with your lender on the % you are required to put down.
-
Property Eligibility Type: Look into the property and see qualifications. Most properties are eligible to use a conventional mortgage.
-
Sufficient DTI Ratio: Most lenders will permit a maximum debt-to-income ratio of 43%.
-
Private Mortgage Insurance (PMI): If you qualify for a conventional mortgage and pay less than 20% down, you will be required to pay PMI. For a conventional loan, PMI typically costs between 0.5% and 1% of the entire loan on an annual basis.