Real Estate Word of the Day: Conventional Loan
A conventional loan is a type of mortgage that is not insured or guaranteed by any government agency, such as the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the USDA Rural Housing Service. Instead, these loans are backed by private lenders, and their guidelines are established by Fannie Mae and Freddie Mac, the government-sponsored enterprises that buy and guarantee mortgages.
Conventional loans typically require a down payment of at least 3% to 20% of the home's purchase price. A larger down payment can often lead to better loan terms and a lower interest rate. If your down payment is less than 20%, you will typically need to pay for PMI. This insurance protects the lender in case you default on the loan. PMI can be cancelled once you reach 20% equity in your home. Borrowers generally need a higher credit score to qualify for a conventional loan compared to government-backed loans. A minimum credit score of 620 is usually required, though higher scores can unlock better rates.
Conventional loans are versatile and can be used to finance various property types, including single-family homes, condominiums, and multi-family units. This flexibility allows you to choose the type of property that best suits your needs and lifestyle. With a good credit score and a sizable down payment, conventional loans often offer lower interest rates compared to government-backed loans. Lower interest rates mean lower monthly payments and less interest paid over the life of the loan. Unlike FHA loans, which require an upfront mortgage insurance premium, conventional loans do not have this cost. This can result in significant savings at closing.
Looking to buy or sell your home on Staten Island? For all your real estate needs, look no further than Tom Crimmins Realty! Give us a call at (718) 370-3200, and we can provide you with professionally-trained agents who are flexible to all that you’re looking for!