A Conventional loan refers to any loan that is not insured or guaranteed by the federal government, as opposed to government-insured home loans including FHA loans, VA loans, and USDA loans. Conventional mortgage loans (conforming or non-conforming) typically have a slightly higher down payment requirement than government loans; however, the Conventional loan option normally provides more flexibility and fewer restrictions.
If you have good credit and stable income, a conventional loan might be the right option for you, since conventional loan programs traditionally offer:
There are conventional loan programs that allow for a down payment as little as 3%, so if you qualify for these programs, then yes! In fact, one of the biggest home-buying myths out there is that you need a 20% down payment to buy a home; you absolutely don’t.
Take note, however, that if your down payment is less than 20%, a private mortgage insurance (PMI) payment will be added to your monthly mortgage payment, until you have paid off 20% of the mortgage amount.
It depends on your unique financial situation and goals when buying a home. One loan type is not necessarily “better” than another; it’s really more about what loan type fits your current situation and needs. If you have relatively good credit, stable income and a little bit more saved for a down payment, a conventional mortgage loan might be the right fit for you.
If you are an active U.S. service member, veteran or surviving spouse (where a VA loan might be advantageous); or unless you are specifically looking for a home in a more rural setting (where a USDA loan might be advantageous). But as always, your mortgage loan advisor will be able to go through all this with you and help you decide which type of loan fits your specific situation best.
One of the major motivations for refinancing from an FHA loan into a conventional loan is to drop the requirement of paying monthly mortgage insurance on top of their mortgage payment. If this is your aim, it may be better to wait until you have 20% equity in the home, because if you don’t, a conventional mortgage loan will still require you to pay mortgage insurance until you do have that 20% equity stake.
Another major motivation for refinancing from an FHA loan into a conventional mortgage loan is when someone has improved their credit score or debt situation a great deal during their first years as a homeowner. If your credit score has gone up considerably or if you have paid off some debts recently, you might now qualify for a significantly better mortgage rate on a conventional loan, which could mane a conventional loan more advantageous over the life of the mortgage.
Keep in mind, though, that current market mortgage rates also have a great deal to do with what rate you may get on a refinanced mortgage. So, just because your situation has improved does not always mean now is the right time to refinance from one mortgage type to another. A mortgage advisor will be able to help you find out what benefits you may reap from refinancing from FHA loan to conventional loan and when might be the best time to do so.
There may be several ways to accomplish this, depending on your financial situation and where you are buying or refinancing your home.
Owing taxes* is a separate matter from having a tax lien. Tax debt is simply owing money to the IRS and/or a state, but a tax lien means that your taxes went unpaid long enough to trigger collection actions. If you have an IRS lien on your income or assets, it greatly diminishes your chances at getting approved for a conventional mortgage. It does not automatically nullify your eligibility for an FHA loan, but it does nullify eligibility for a conventional mortgage through Fannie Mae.
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