Debbie Windisch

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When you apply for a home loan, you have the option of choosing between a government-backed mortgage, like an FHA loan, or a conventional mortgage. Rather than being insured by the federal government, conventional mortgages are insured by a private company.

Because they do not have government backing, conventional home loans are a higher risk, which means you can expect stricter income and credit requirements. If you qualify, conventional loans offer many advantages, and they are often more affordable.

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Benefits of a Conventional Loan

Conventional mortgages are often the best choice for borrowers who have excellent credit and a down payment of at least 20 percent. These loans can be used to buy a primary home, second home or investment property, unlike FHA or VA loans, which may only be used for a primary home. Conventional loans are available with many terms ranging from one year to 30 years, and they are available as a fixed-rate or adjustable-rate mortgage.

The advantages of a conventional mortgage include:

Lower fees than an FHA loan.
Private mortgage insurance, or PMI, will only be necessary if you put less than 20 percent down on the home. PMI will be canceled once you build enough equity in the home, unlike an FHA loan, on which mortgage insurance must be paid for the life of the loan.
Down payment can be as low as 3 percent for well-qualified buyers.
Loans usually close faster.

Do You Qualify for a Conventional Loan?

Keep in mind, conventional mortgages are usually harder to obtain than a government-backed loan.
We will want to see the following: test

FICO score of at least 640
Down payment as low as 3%
Monthly housing costs of no more than 28 percent of gross monthly income
Monthly debt not exceeding 36 percent of gross monthly income
Discharged from Chapter 7 bankruptcy (if applicable) for a minimum of four years

If you qualify, there is a good chance a conventional loan is a better option than an FHA loan. FHA loans have become much more expensive over the last few years with rising mortgage insurance premiums.

If you are trying to choose between a government-insured mortgage and a conventional home loan, it can help to think about your priorities. If you have great credit and can put down at least 20 percent, the conventional loan option will save you more money. If you want to pay less up front in exchange for a higher monthly payment, a government-insured loan may be a better choice.