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- Sep

DIFFERENCE BETWEEN CONVENTIONAL AND NON-CONVENTIONAL LOANS

Are you planning on buying a home in the future? If so, you have probably come across “conventional” and “non-conventional” loans. The question posed in this article is, what’s the difference? In this article I will attempt to give you a detailed explanation of what the two types of loans are. I know that finding […]

Are you planning on buying a home in the future? If so, you have probably come across “conventional” and “non-conventional” loans. The question posed in this article is, what’s the difference?

In this article I will attempt to give you a detailed explanation of what the two types of loans are.

I know that finding a loan for your home that suits your financial circumstances can be extremely frustrating and that is why knowing the difference between the two is key to making the right decision and ensures that you can buy your home without worrying about your finances.

Finding a home loan that suits your financial circumstances can be frustrating. That is why knowing the difference between the two basic loan types is very key to ensuring that you make the right decision and ensures that your buying process goes as it should.

CONVENTIONAL HOME LOANS

What are conventional Home Loans?

A conventional loan is any type of mortgage that is not insured by a GSE (government-sponsored entity) such as the U.S Department of Veterans Affairs (VA) or the Federal Housing Administration (FHA). These loans are known as “conforming loans” because they meet the guidelines set by Freddie Mac and Fannie Mae, the biggest investors of conventional loans. The rules that they must adhere to are as follows: Must include a minimum FICO of 620, the loan cannot exceed $417,000, and their debt to income (DTI) should not exceed 36%.  Essentially, a conventional loan is good for those who have a good credit score as they usually know how to manage their money and can meet deadlines without any worry.Conventional loansalso require that you put a down payment of at least 20%. Let’s say that your loan amounted to $200,000, you would have to put down $40,000 plus fees and closing costs. If you cannot put down the 20%, you must buy private mortgage insurance.

Basically, there are two different types of conventional loans, they include:

  • Fixed Rate: The rate for your mortgage will not change (over the life of the loan)

  • Adjustable rate: You will have a fixed rate for a certain time, and then it can adjust up or down, depending on the market. This is a good option if you want to save money if you plan to move or even refinance.

In the past, people who wanted to buy a home were required to down a minimum of 5% for conventional loan, but a program that was recently implemented has allowed buyers to put down as little as 3%. Since a conventional loan has great interest rates, and you can put down a low amount of money, a conventional loan is an amazing option for some buyers.

Also known as conforming loan, a Conventional home loan is a type of loan that is not insured by the Federal Housing Administration or guaranteed by the Veterans Administration, both of which make homeownership very affordable and accessible too. They are called conforming loans because they are known to meet guidelines set forth by both Freddie Mac and Fannie Mae, these two are the largest investors of conventional loans.

Simply put, a conventional loan is a loan that the federal government does not support/back. This type of loan is great for those who have a good credit score.

One of the rules conformed to states that a minimum FICO requirement of 620 is needed, a loan amount not exceeding $417 000 – that is for a single-family home and a debt-to-income ratio that does not exceed 36%

In addition to that, conventional loans require that you put down payment of at least 20%. Let’s say your loan sums up to $350 000, you would need to put down $70 000 in addition to any fees and closing costs upfront. But in case you are not able to put down the required 20%, then you will have to buy private mortgage insurance.

Basically, there are two major types of conventional loans, they include:

  • Fixed rate your mortgage is fixed over the life of your loan.

  • Adjustable rate

After an initial fixed – rate period, your interest can adjust, but that depends on the market. This option can save you money. That is if you plan to move or refinance within 5 – 10 years.

Back then, homeowners were required to put down a minimum of 5% for conventional loans, but things have changed, now you are allowed to make down payments as low as 3%.

The bottom line; the conventional loan has not approved by Federal Housing Administration or guaranteed by the Veterans Administration and that the two types of the loan are the fixed type and adjustable rate.

NON-CONVENTIONAL LOANS

What is a non-conventional loan?

The other loan that we will be discussing is the “non-conventional” loan. This type of loan is backed by the government and it offers different products that may be considered as more flexible to some buyers. Your financial situation is key here as non-conventional loans can help you get a mortgage when you may not have met the guidelines for a conventional loan.

Just like the conventional loan, there are two types of non-conventional loans:

  • VA: VA loans let veterans purchase a house with no money down and they offer a plethora of different products to fit your needs.

  • FHA: FHA loans do not have as strict qualifications and credit requirements as a conventional loan. FHA loans allow you to put less than 20% as your down payment, but they do require you to pay for mortgage insurance premiums.

When it comes down to choosing between the two different types of loans, you should always discuss your options, but ultimately the choice is yours. Just remember that your financial situation will deem which loan is appropriate to choose.

A non-conventional loan, on the other hand, is backed by the government. This type of loan offers a different situation; this type of loan can help you obtain a mortgage when you otherwise may not have met conventional guidelines.

Just like the conventional loan, the non-conventional loan is of two types:

  • VA

VA loans allow veterans to purchase a house with no money down and offer different products to fit your needs.

  • FHA

FHA loan has less stringent qualifications and credit requirements than a conventional loan. With the FHA you can put down 20% when paying. But, it requires you paying mortgage insurance Premiums.

So, in general, the non-conventional loans are a great choice for homeowners. The only problem is that the loan limit is lower, and if a higher price is required for a home loan, the buyer must then put down a larger down payment.

The bottom line; as against the conventional loan, the non-conventional loan has the backup of the government (Federal Housing Administration or Veterans Administration). It is also one of the great choice and great choice for home owners

Choosing one of these loan products, whether conventional or non-conventional home loans, the choice is yours, but make sure you analyze your options with an Expert. Your current state will determine the type of loan that fits you best.

Brand name” is one of the best mortgage companies around; we are always available to provide you with solutions for your home loan needs. Contact us on “Number” and “email address”

At this point, you can now differentiate clearly between the conventional and non-conventional.

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