| It seems conventional financing is the most sought | | | | your taxes and insurance on your own. These |
| after option when seeking a home loan for a purchase | | | | payments must be included in your monthly mortgage |
| or refinance. This is not because it is the best choice. It | | | | payment. |
| has just been assumed to be the best option in most | | | | If your income is not easily verified, conventional lending |
| lending circles. Understanding what a conventional loan | | | | has alternatives that allow for limited or no |
| is will help you make an informed choice. | | | | documentation of income. You will need excellent |
| A conventional mortgage is any loan that follows | | | | credit and either a large down payment or a lot of |
| Fannie Mae, Freddie Mac, or private label lending | | | | equity due to the inherent risk to this type of lending. |
| criteria. This includes subprime, negative amortization | | | | The interest rates are usually a bit higher due to this |
| ARM's, jumbo, and interest only loans. Excluded loans | | | | risk. Limited income, no income, or stated income loans |
| are FHA, VA, USDA, business financing, and | | | | are largely for self employed borrowers. A self |
| commercial loans. | | | | employed person generally will not receive pay stubs |
| Conventional mortgages offer definite advantages for | | | | or W-2's. |
| some borrowers. One advantage is that there are no | | | | In today's market conventional home loans do carry |
| loan limit restrictions. This will not affect the average | | | | some definite disadvantages. A major disadvantage is |
| person, but if you are in the market for a home loan | | | | that the required equity stake is higher than on |
| greater than roughly $800,000, this is your only real | | | | non-conventional loans. This means a purchaser will |
| option. | | | | need to invest a greater down payment. Someone |
| Another advantage is the option of eliminating | | | | looking to refinance will need a higher home value vs. |
| mortgage insurance, and not having your taxes and | | | | the loan amount requested. Credit underwriting is also |
| insurance included in your mortgage payment. These | | | | stricter and current interest rates tend to be higher for |
| options are only available if you have a 20% equity | | | | those with average credit scores. The debt to income |
| stake. They are not options with many other types of | | | | ratio is less flexible. |
| home loans. Although you will not pay mortgage | | | | Understanding all of your options will help you choose |
| insurance for the duration of the loan, there will usually | | | | the right mortgage for your needs and qualifications. |
| be an insurance cost. You will not be allowed to pay | | | | |