Home financing translated into English that even a normal person can comprehend…Part Three.
Over the past few days, we have blogged about FHA and DVA mortgages focusing on the basic advantages and disadvantages of each. A home buyer is well-served to have some idea about all of the different funding options and then to discuss those options with a lender who can guide them down the best path.
A conventional mortgage is a home loan that that is not insured or guaranteed by the federal government, as opposed to FHA, DVA and USDA mortgages which are backed by the feds. Nationwide, conventional loans are the most common type of home finance options.
The main benefits of conventional financing include: Loan fees can be negotiated, creative financing is an option, down payments can be as low as 3%, total closing costs are lower than with other options, mortgage insurance can be discontinued at a certain point, and the appraisal rules are more relaxed than they are with government backed loans.
The primary disadvantages of conventional financing are: Interest rates can be higher than FHA rates, and it is more difficult for a buyer with a lower credit score to qualify for a conventional loan. (Credit scores are the subject of a couple of future blogs.) The rule of thumb here is, “Conventional financing is tougher on the buyer and easier on the property.”
A buyer does not need to be a home loan expert before going in to meet with a lender, but having a little background about some of the terms and the main options will give him/her a definite “edge” when speaking with a mortgage broker.
Next up, USDA…