Conventional mortgages are home loans that are not insured or guaranteed by the federal government. Down payments may be lower but it can be harder to qualify for a conventional loan than it is for government home loans. Once the requirements as set forth by Freddie Mac and Fannie Mae have been confirmed with, a minimum down payment of at least 3% is typically required. With a down payment of 20% or more, borrowers are exempt from paying mortgage insurance premiums are required with FHA or other government home loans.
FHA (Federal Housing Administration) loans are guaranteed by the federal government and were instituted to help make home buying more affordable for families who fall into the low- to middle-income bracket. This was achieved by relaxing lending standards, offering competitive rates, and reducing down payments to as low as 3.5%.
Other Federal Government-Backed Loans
There are two other federal backed loan programs available with similar aims:
– VA Loans guaranteed by the US Department of Veterans Affairs. These loans are only available to veterans and active military personnel and have the same benefits as FHA loans.
– USDA Loans that are guaranteed by the US Department of Agriculture. These home loans are specifically geared toward rural property buyers.
Conventional home mortgage borrowers typically have a more secure financial standing, can make more substantial down payments, and are considered to have a lower risk of defaulting on loan repayments. Larger down payments result in lower monthly premiums. Besides, taking into consideration the ever-increasing insurance premiums on mortgage loans with the FHA, payments on conventional mortgages that do not require private home loan insurance can be far more manageable in comparison.
Conventional mortgages are considered a higher risk by many lenders as they are not government guaranteed in the event of default. Because of this conventional mortgages have higher rates and requirements to obtain loans are much tougher to conform with. With conventional loans, borrowers have the option of canceling their mortgage insurance once the principal loan balance has dropped below 78% of the value of the home.
With FHA loans mortgage insurance premiums are charged for the duration of the loan.
Prodigy Lending is a DBA of AmCap Mortgage, Ltd. (NMLS ID# 129122 – www.nmlsconsumeraccess.org/EntityDetails.aspx/COMPANY/129122), an Equal Housing Lender.
Managing RMLO: Jason Turner (NMLS #286357)