When you’re shopping for a home, it’s important to find the best loan for you. Because lending does not have a one size fits all solution, it’s important to understand the different types of home loans. Here are 5 benefits of conventional loans.
Benefits of Conventional Loans
No mortgage insurance
One of the most popular benefits of conventional loans is the no need for mortgage insurance. With a conventional loan, if you have enough cash on hand to make a 20% down payment or higher, you will not have to pay mortgage insurance to obtain your loan. With an FHA loan, you are able to pay as low as 3.5% down but it comes with having to pay a lofty monthly mortgage insurance.
Can be used for investment properties
Unlike other loans, conventional loans can be used to purchase investment properties and second homes. With today’s booming market, it’s common for those who are able to buy multiple home to do so to grow their monthly income. Conventional loans are also used to for jumbo loans which are loans that exceed the statutory limits. The maximum county limit in high cost areas is $625,500.
Terms and conditions
One of the biggest benefits of conventional loans is that lenders may be more willing to negotiate terms and conditions than with a government back loan such as an FHA loan. With these loans buyers are required to follow strict guidelines that leave little to no room for flexibility. Additionally, conventional loans are often processed on a quicker timeline than government backed loans such as FHA loans.
Down payment and equity
Because you pay 20% down for a conventional loan, you get a head start over other buyers with lesser qualifications. You also already have equity in the home at the time you sign the closing documents when you put 20% down. Having equity from the get go is helpful if you need to sell your home during a down turn. That way you can minimize your losses. We are currently in a booming market where homes are gaining equity quickly, but you never know when the housing market can plummet.
Lower closing costs
A conventional loan has fewer requirements than other types of loans, which make conventional loans easier to prepare. This means that the borrower must cover lower closing costs which means less out of pocket costs for the buyers during signing. These costs can include but are not limited to origination fees, legal fees, appraisal/home inspection fees, title, and escrow.
You may also like: 5 Benefits of FHA Loans.