If you’re looking to buy a home, one of the first questions you’ll need to answer is what type of loan you should use. Should you go with an FHA loan, or maybe a VA loan? How about a conventional loan? What the heck is that? Well, don’t worry—I’m here to explain! Let’s see if I can help shed some light on this very important subject.
What it is
A conventional loan is a mortgage issued by either a bank or credit union that is not insured by any government agency—in other words, it’s not “backed” by the government in any way. This means that if you default on your loan, the bank or credit union will be out of luck and won’t receive any money from the government to cover their losses.
Advantages and Disadvantages
The biggest advantage of using a conventional loan to buy your home is that you usually don’t have to put down as much money upfront as with other types of loans (like FHA). The downside, however, is that traditional lenders are often more strict when it comes to approving borrowers for this type of financing. They may require higher credit scores and/or larger down payments from prospective buyers who want to get a conventional loan.
In addition, conventional loans are typically more expensive than other types of loans because they come with higher interest rates and often require private mortgage insurance (PMI) if you put down less than 20% when buying your home. PMI protects the lender in case you default on your mortgage so they can still get paid back even after repossessing your house.
In summary, a conventional loan can be great if you have good credit and enough money saved up for a down payment. It can also be expensive due to higher interest rates and PMI requirements though, so make sure you weigh all your options before deciding which type of mortgage is best for you! Good luck!