A Conventional Loan offers borrowers the greatest variety of options and is the most popular loan program for buying a new home or refinancing an existing property. With a Conventional mortgage borrowers can choose:
- The term (length) of the loan. Typically borrowers select from 10 – 30 year terms in 5 year increments.
- The down payment size. Offers as little as 3% down-payment programs. A 20% down payment can eliminate the requirement for purchasing mortgage insurance or using a second mortgage to eliminate mortgage insurance as well. First time home buyers should not shy away from Conventional loans as there are many low down payment alternatives.
- Whether the loan will be a fixed rate mortgage or an adjustable rate mortgage.
How do you select the right conventional loan option for you? The most important factor is determining how long you plan on owning the home. Let’s use the fixed rate vs. adjustable rate option as an example:
- Fixed Rate Mortgages provide the peace of mind of knowing exactly what your rate will be for the entire term of your loan – a great option if you’re planning on owning the property long term. With a fixed-rate mortgage, there is no risk of your rate rising, even if general market interest rates do rise.
- Adjustable Rate Mortgages are initially lower than fixed-rate loans. They can be a good deal if you know you’re going to stay in your home for a relatively short period of time. Using an adjustable rate mortgage does expose you to the risk that interest rates could rise and drive up your monthly payments.
Having this many options to select from may seem daunting, but with an experienced lender guiding you through the mortgage process, you may find that a conventional loan is the best option for your residential home loan.