What is a Conventional Loan?
Conventional loans are otherwise known as "conforming" and offer high loan limits vs FHA loans
There are also established guidelines for borrower credit scores, income requirements and minimum down payments. For example, most conventional loans require somewhere between 3 percent and 20 percent down.
Conventional loans can be conforming or nonconforming. Loans above the lending limits set by Fannie Mae and Freddie Mac are called nonconforming or jumbo loans.
Conventional loans either have fixed or adjustable interest rates. Fixed interest rate loans have terms of 15 or 30 years. Shorter-term loans usually results in a lower interest rate. Adjustable-rate mortgages, or ARMs, fluctuate in relation to the rate of a standard financial index, such as the LIBOR. Monthly payments can go up or down accordingly.
Conventional Loans may be Cheaper
If you plan on using a 20% down payment to avoid PMI. You may have no choice but to get conventional financing. FHA loans will require mortgage insurance regardless how much your down payment is.
If you have a 20% down and are seeking a 80% LTV loan-to-value mortgage. Then a conventional mortgage will be cheaper than FHA.
Some Conventional Mortgage Benefits
FHA Loan Disadvantages
Comparing Credit Scores FHA vs Conventional
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