Conventional Loan

Conventional Loan

If you possess a solid credit history and a stable income, a conventional loan could be the ideal choice for you. Conventional loan programs typically offer the following advantages:

  • Lower Interest Rates: Borrowers with good or excellent credit can benefit from lower interest rates compared to other loan options.
  • Flexible Mortgage Insurance Options: In some cases, conventional loans offer flexible mortgage insurance options, and in certain situations, mortgage insurance may not be necessary at all.
  • Fewer Penalties and Fees: Conventional loans tend to have fewer penalties and fees associated with them, providing borrowers with more financial flexibility.
  • Flexible Loan Terms: Conventional loans provide borrowers with a range of flexible loan terms, allowing them to select an option that aligns with their specific needs and preferences.
  • Down Payment Options: Conventional loans offer down payment options ranging from 3% to 20%, enabling borrowers to choose an amount that suits their financial circumstances.


Conventional Loan FAQs

Can I get a conventional mortgage loan with 5% down?

Absolutely! conventional loan programs available that allow for a down payment as low as 3%. So, if you meet the criteria for these programs, you can certainly proceed with a 5% down payment. It’s important to dispel the common misconception that a 20% down payment is always required to purchase a home. That is not the case at all.

However, it’s essential to note that if your down payment is less than 20%, you will typically be required to pay private mortgage insurance (PMI). This additional payment is included in your monthly mortgage payment until you have paid off 20% of the mortgage amount.

Remember, it’s always a good idea to consult with a knowledgeable mortgage professional who can provide personalized guidance based on your specific situation and help you navigate the various loan options available to you.

Is a conventional loan the best option for a home loan?

The answer depends on your individual financial situation and goals when it comes to purchasing a home. It’s important to note that one type of loan is not necessarily superior to another. The key is to determine which loan type aligns with your current circumstances and requirements. If you have a solid credit history, stable income, and have saved some funds for a down payment, a conventional mortgage loan could be a suitable choice for you.

However, it’s worth considering alternative options as well. For instance, if you are an active U.S. service member, veteran, or surviving spouse, a VA loan may provide specific advantages tailored to your circumstances. Similarly, if you are seeking a home in a rural area, a USDA loan may offer unique benefits. Your Fairway mortgage loan advisor will play a pivotal role in assisting you with a comprehensive assessment and helping you determine which loan type best suits your specific situation.

How soon can I refinance my FHA loan into a Conventional loan?

If your goal is to eliminate the requirement of paying monthly mortgage insurance on top of your mortgage payment, it may be more beneficial to wait until you have reached 20% equity in your home. This is because a conventional mortgage loan will still necessitate mortgage insurance until you have achieved that 20% equity stake.

Another compelling reason to consider refinancing from an FHA loan to a conventional mortgage loan is if you have significantly improved your credit score or reduced your debt since becoming a homeowner. A notable increase in your credit score or the recent payoff of debts might make you eligible for a considerably better mortgage rate on a conventional loan. Over the course of the mortgage, this could potentially make a conventional loan more advantageous.

However, it’s important to factor in current market mortgage rates when contemplating a refinancing decision. Just because your financial situation has improved does not automatically mean it is the ideal time to refinance from one mortgage type to another. Consulting with a Fairway mortgage advisor will enable you to ascertain the benefits you may gain from refinancing from an FHA loan to a conventional loan and determine the optimal timing for such a transition.

Can I finance my closing costs with a Conventional loan?

Certainly! Depending on your specific financial situation and the location of your home purchase or refinancing, there are multiple approaches to achieving this.

One option is to request “seller concessions” from the seller, wherein they contribute towards paying some or all of your closing costs. You can negotiate this arrangement and include it in your home purchase contract. It’s crucial to communicate your intention to ask for seller concessions to both your real estate agent and Fairway mortgage advisor upfront. However, it’s important to note that the feasibility of such negotiations may be influenced by current real estate market conditions, particularly in a “seller’s market.”

Another possibility is to opt for a higher mortgage interest rate in exchange for the lender’s assistance in covering your closing costs. This is commonly known as “buying up” your interest rate.

Many conventional home loan programs allow buyers to use gift money provided by family members, employers, or close friends to help offset closing costs. If you plan to utilize gift money for this purpose, it’s essential to inform your Fairway mortgage advisor in advance.

Additionally, you can explore grants and forgivable loans through down-payment assistance programs. These programs are typically administered at the county or state level, and their qualification criteria may vary. Consult with your Fairway mortgage advisor to determine if there are any relevant down-payment assistance programs available to you.

Remember, discussing your specific financial circumstances with a knowledgeable Fairway mortgage advisor will enable you to explore the most suitable options for financing your closing costs.

Can I qualify for a conventional loan if I owe taxes?

It’s important to differentiate between owing taxes and having a tax lien, as they are distinct issues. Owed taxes refer to the amount of money you owe to the IRS and/or state tax authorities. On the other hand, a tax lien is imposed when taxes remain unpaid for an extended period, leading to collection actions. While owing taxes does not automatically disqualify you from obtaining an FHA loan, having an IRS tax lien significantly reduces your chances of approval for a conventional mortgage through Fannie Mae.

Conventional Loans Vs. FHA Loans Highlights

When considering conventional loans versus FHA loans, there are some key highlights to keep in mind:

  • Conventional Loans: These loans are generally more suitable for individuals with better or well-established credit histories and lower levels of debt. If you fall into this category, opting for a conventional loan may prove advantageous.
  • FHA Loans: On the other hand, if you have limited established credit, a lower credit score, or slightly higher levels of debt, an FHA loan may be a more cost-effective choice over the duration of the mortgage. This is particularly true for first-time homebuyers, although it’s important to note that this is not always the case.