It’s taken us a while to get smarter about finances, especially when it comes to big, life-changing purchases like buying a home. With the right information and planning, it’s easier to feel smart about big decisions.
When it comes to choosing the right home loan, there are a number of factors to consider. However, one of the most important factors is the type of loan you choose. Many first-time home buyers are unsure of what type of home loan is right for them, which can lead to a great deal of confusion. There are many different options to choose from, and the type that you choose will impact how much you pay in interest and how much you will have to pay every month. Here is the most common type of loan and what you can expect.
A conventional loan is the most common types of home loans that borrowers choose. A conventional loan is one that is not insured by the federal government. It is funded through private lenders like banks and credit unions or mortgage companies, and it is paid off using a regular monthly mortgage payment over a set period of time. There are a number of different factors that can impact how much you have to pay for a home loan, including your credit score and credit history.
How to Apply
Applying for a conventional loan is fairly simple and straightforward. The first step is to apply for a pre-approval from a lender of your choice. When you get a mortgage rate quote for a conventional loan, the quote will take into consideration a number of factors including your credit profile, your down payment amount, and the overall value of your property.
To get pre-approved for a conventional loan, you will need to provide the lender with a copy of your credit report and certain details about your finances such as your income and employment history. By providing this information upfront, you can streamline the process and ensure that your application is processed as quickly as possible.
Once the application is complete and submitted, it will generally be reviewed by your lender within one or two business days. If everything looks good, you will be approved and issued with a commitment letter, which will outline the terms and conditions of the loan and allow you to move forward with the purchase of your home.
Pros and Cons
One of the biggest advantages of a conventional loan is that it is easy to qualify for if you have decent credit. Most borrowers are approved for this type of loan albeit with high-interest loans, regardless of their credit history, employment history, or financial situation. Because of this, it is possible to get approved for a loan even if you have little or no credit or a spotty employment history.
Another advantage of a conventional loan is that it provides greater flexibility in terms of the loan amount and monthly payment amount you can borrow. If you want to take out a larger loan, you don’t have to worry about meeting a limit imposed by the federal government, as there is no such limit with a conventional loan. However, if you opt to take out a smaller loan, you may be required to pay higher monthly payments.
The cons of a conventional loan include that you must put up a down payment to secure the loan. This money covers the costs of your loan and protects the lender if you can’t repay the borrowed money. Unlike other types of loans that require no down payment, conventional loans typically only require a small down payment, such as three percent or more of the home’s purchase price.
Another potential disadvantage is that you will usually have to make monthly mortgage payments throughout the life of the loan. You will have to pay interest on the loan for the entire period. Conventional loans are generally more difficult to get than other types of loans, such as FHA loans or VA loans in some cases. This is because lenders have a higher level of risk for conventional loans.
After all, the borrower may be unable to repay the loan if market conditions change or the borrower loses his or her job. The requirements for qualifying for a conventional loan are also more stringent than those for other loan programs, so you may not qualify for a conventional loan if you have a low credit score or limited income.
As you can see, there are both advantages and disadvantages to taking out a conventional mortgage loan. Before you decide if you want to take out this type of loan, you should carefully weigh the pros and cons of each type of loan to determine which one best fits your needs. If you currently have a mortgage on your home, you should talk with your lender about refinancing your loan with a private lender.