Conventional Loans at Park 65 Lending

Welcome to our comprehensive guide on conventional loans! Whether you're buying your first home, refinancing, or just exploring your mortgage options, conventional loans are a popular choice. Here, we break down what conventional loans are, their key features, and why they might be the right choice for you.

What is a Conventional Loan?

A conventional loan is a type of mortgage that is not insured or guaranteed by the federal government. Unlike FHA, VA, or USDA loans, which have specific eligibility criteria and government backing, conventional loans are offered by private lenders and adhere to the guidelines set by Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs). At Park 65 Lending, we can approve you for conventional financing by shopping different banks to find you the best terms.

Key Features of Conventional Loans

1. Down Payment Requirements

Conventional loans require a down payment of at least 3% of the purchase price for first-time homebuyers or those who haven’t owned a home in the past 3 years. For repeat home buyers who plan to reside in the property, or those who plan to reside in a 2-4 unit property, the down payment is as low as 5%. For investment loans, we may need as much as 25% down to create favorable loan terms.

2. Loan Limits

Conventional loans have maximum loan limits that vary by location. Check with your Park 65 Lending Loan officer for more details.

3. Private Mortgage Insurance (PMI)

If your down payment is less than 20%, you’ll typically be required to pay for Private Mortgage Insurance (PMI). PMI is an additional monthly charge you pay with your mortgage each month to protect the lender in case you default on your loan. The closer to 20% down you put on your home, the smaller the PMI charge. However, once you reach 20% equity in your home, you can request to have PMI removed, which can reduce your monthly payments.

PMI costs are significantly reduced for those whose credit scores are at or near 780.

4. Interest Rates

Conventional loans often offer competitive interest rates, especially for borrowers with strong credit profiles. Rates can be fixed or adjustable, depending on your preference and financial situation.

5. Credit Score Requirements

To qualify for a conventional loan, a good credit score is crucial. Most lenders look for a minimum score of 620, but higher scores can help you secure better terms and lower interest rates. In some cases, qualifying for an FHA loan is an alternative way to get more competitive monthly payment terms.

6. Loan Terms

Conventional loans typically come with a variety of term options, including 15 or 30 years. Shorter loan terms usually mean higher monthly payments but less interest paid over the life of the loan. Conversely, longer terms offer lower monthly payments but may accrue more interest over time.

Advantages of Conventional Loans

• Flexibility: Conventional loans offer a wide range of term lengths and down payment options.

• No Mortgage Insurance: With a down payment of 20% or more, you can avoid paying PMI, which can save you money over the life of the loan.

• Competitive Rates: Good credit borrowers often enjoy lower interest rates with conventional loans compared to other types of mortgages.

Considerations

While conventional loans offer many benefits, they also come with considerations:

• Stricter Credit Requirements: Those with lower credit scores might find it more challenging to qualify.

• PMI costs: For those with credit scores less than 720, the cost of monthly PMI may be add significant costs to your monthly mortgage payment.

Is a Conventional Loan Right for You?

Conventional loans are a great option for many borrowers, especially those with good credit and the ability to make a substantial down payment. However, every financial situation is unique. To determine if a conventional loan aligns with your needs, call a Park 65 Lending loan officer today.