Conventional loans can be a great lower cost mortgage option for people who can afford to take advantage of some of its key benefits. One of these benefits is the lack of an additional mortgage insurance payment for borrowers who are able to make a 20% down payment. Even if you’re not able to put 20% down at close you can still have your mortgage insurance removed, after you reach 20% in equity, without having to refinance your property.
Borrowers who are refinancing also often choose conventional loans to save money compared to their existing mortgages. For example, FHA borrowers may transition to a conventional loan in order to eliminate mortgage insurance while getting a great rate.
Another key benefit of a conventional loan is its flexibility to be applied to many different kinds of properties. Conventional loans can be used to finance a primary residence, a second home, or a rental property.
Conventional loan borrowers have the choice of opting for either adjustable-rate (ARM) or fixed-rate loans, depending on their plans for the property. While many prefer the reliability of a fixed rate that stays the same over the life of the loan, some will opt for an adjustable rate if they want to take advantage of the lower rate and don’t plan on staying in the house long enough to be at risk of seeing their payment increase.
While most conventional loans do require a down payment of some kind, many borrowers are surprised to learn that you can qualify for a conventional loan with as little as 3% down. If you wish to avoid mortgage insurance, you will need to put at least 20% down or wait until you reach approximately 20% equity in the home to cancel it. Conventional loans are a great choice for first time homebuyers with good credit and income.