Could you benefit from a conventional loan?
When you’re contemplating how to fund the purchase of a Utah home, the multitude of mortgage types and borrowing options might take you by surprise. The most popular is the conventional loan, but that term actually refers to any mortgage that isn’t backed by a government agency. In any case, these loans can be a good fit for many would-be homebuyers, and if you’re in the market for a mortgage, conventional financing is worth considering. Below, the Intercap Lending team explores the pros and cons.
Advantages of Conventional Loans
For some Utah homebuyers, a conventional mortgage is the best choice. The reasons you might want to go with this type of financing include:
- Lower down payment than an FHA loan – The minimum amount you’ll need to put down for a mortgage through the Federal Housing Administration is 3.5 percent of the purchase price. Take out a conventional loan, and a down payment of just 3 percent will suffice.
- Competitive rates for mortgage insurance – Putting down less than 20 percent on a conventional home loan means paying private mortgage insurance, but the amount is typically less than what the FHA charges. It can also be less than the funding fee that comes with a loan backed by the Veteran’s Administration.
- Higher maximum debt-to-income ratio – Some conventional mortgage lenders are willing to work with borrowers who have a DTI as high as 45 percent, which is more than the FHA and VA generally allow. It’s also more than the limit for loans through the U.S. Department of Agriculture.
Drawbacks to Conventional Financing
While conventional mortgages have several benefits, not all Utah homebuyers find this form of financing to be a good fit. The downsides to consider include:
- Higher down payment than a VA loan or a USDA loan – Those who qualify can get zero-down home loans through the VA or USDA. With a conventional loan, putting at least 3 percent down is a must.
- Higher minimum credit score – Would-be Utah homeowners with a credit score under 620 won’t get offers from conventional mortgage lenders, but government-backed loans tend to be more lenient.
- Slightly higher interest rates – Conventional home loans can feature low interest rates, but that’s usually only true with a high credit score. With a lower score, government-backed mortgages may offer better rates.
Is a Conventional Loan Right for You?
After reading everything above, you may have a pretty good idea as to whether or not conventional financing makes sense – but before making a decision, you’d be wise to consider all of your borrowing options. For help with that task, turn to the mortgage professionals at Intercap Lending.
Our extensive experience means we have what it takes to find your ideal mortgage solution, and we’d be happy to guide your journey to homeownership. To get expert advice on conventional loans, contact our office in Orem, Utah, today.