Header for Articles


Boston Apartments Logo

Conventional home loans

Home loans and Conventional home loans, like chalk and cheese, have differed characteristics and traits. These conventional home loans are more similar to simple mortgage plans that require a convincing guarantee from the borrower. Unlike modern home loans, this financing option is not secured by the government body. Modern home loans are guaranteed by Veterans Administration and Federal Housing Administration. Conventional home loans have a major market share in US home loan industry. In general, such loans may revolve around 20-30% of the total residential loans.


Conventional home loans are long term financing plans with fixed rate of interest. Some conventional home loans, though are negotiated by the clients at a comfortable term and rate. Generally, these loans are intended to be paid back in a time frame of 15-20 years.


These residential loans are easy to be obtained and the financing amount depends upon the fair value of the property and the financing company pays three-fourth amount to the borrower. Evaluation, too, is a tedious process undertaken by the financer to ensure correct loaning amount and to avoid frauds, calculation mistakes and scams.


Further, we will discuss the key features of conventional home loans that make them a chosen residential finance option among borrowers in United States.


Set on the regulations specified by Fannie Mae and Freddie Mac, conventional home loans are approved only for a part of total cost involved in the deal. This ends up borrowers paying less interest amount to the lender as almost half of the price is borne by them at the beginning and the interest rate is calculated only on the borrowed amount. Thus, larger sum of down payment can be a trouble for a moment, but in long term, these home loans are better and preferred by older players.


Also, interest rates associated with conventional home loans are significantly lower than those of other home loans. This difference in interest rate might not be noticeable at the time of documentation, but in a longer span of time, it makes a whole lot of difference to the borrower. The difference can be sometimes so drastic that one can even think of renovating the house in a couple of years during the loan term with the amount of money saved with lower interest rate.


Conventional home loans can be purchased without the need for buying an insurance plan to insure the property. While, with other home loan plans, this formality becomes a liability when one needs to take a security cover for the house financed. Generally, financers do not take the risk to put their money on property that is exposed to risks of burglary, a quake or any other natural calamity. Though, such policies and insurance plans can be bought for additional benefits and security.


Another feature that makes conventional home loans preferred over other home loan options is that these can be worked out over set of requisites set by the lender in person. They have got nothing to do with the government policies and guidelines that otherwise need to be met to sign a home loan pact.


Conventional home loans are flexible and adjustable in regard of interest rates, loan amount and term. They are available in a spectrum of plans that vary in their own way. Some popular conventional home loans are bridge loans, balloon loans and hybrid loans. These loanstructures vary in their formats and payment terms.


Because these loans are not guaranteed by the government, the borrower needs to show a higher credit score and a good track record in order to attain conventional home loans without many hassles. A low credit score or bad credit history might lead to higher down payment requirement if the loan is still approved.


Debt-to-Income Ratio is another factor that distinguishes between conventional home loans and government-backed home loans. Conventional home loans prefer low debt to income ratio, usually, up to 35%.


Conventional home loans do not offer foreclosure insurance and that is why they have a comparatively higher foreclosure rate.


Conventional home loans are becoming relatively popular among borrowers in US with the increasing rates of interest and higher cases of bankruptcy, scams and close downs. People with good credit history and clear intentions over paying back the loan in time prefer conventional home loans over government supported residential loans to avoid hassles of going through tedious government procedures regarding documentations, submission of proofs and referrals or guarantors.


However, loanschemes supported by Federal Housing Administration are preferred by those who have been looking for another chance for financial recovery after a bad credit history or bankruptcy years back. For them, such loan options are more suitable in order to ease out the tough procedures and to avoid big no's from the financers that become a hurdle to them on their new, chosen path. Credit scores are given by a credit bureau like Experian, Trans-Union and Equifax, considering the track record and credit history related to past financing deals and transactions. They manage to obtain all the detailed information about instalment payment, payment amount and dates of payment, paying heed to the last dates and deadlines.


Conventional home loans are easy, quick and hassle free for those with a clear chit. On the other hand, they might be tiresome, denying and annoying for the borrowers who do not have a clear past record regarding payments and repayments, maintenance of bank accounts and source of income.


Other Articles

  • Home loan mortgage and refinance
  • Cash till payday loan
  • Uk cheap loans