What is it?
A conventional mortgage is one that's not insured or underwritten by the federal government, meaning it excludes FHA and VA loans.
Advantages of a conventional mortgage:
- They don't require private mortgage insurance if you're able to put 20 percent down.
- Since you're usually required to pay a higher down payment than you would for an FHA loan, you'll build equity faster.
- Conventional mortgages are fairly predictable and stable throughout their term, so it's easier to plan for economically.
- You can typically get a 15-year mortgage or a 30-year mortgage.
Disadvantages of a conventional mortgage
- Since the loan puts the risk on the lender rather than the government, you'll need to meet stricter requirements than you would for a FHA or VA loan.
- You’ll need excellent credit to qualify for the best rates, as well as a consistent employment history and reasonable debt to income ratio.
- Many lenders require higher down payments for conventional loans than they do for government-backed loans.
Is it right for you?
Conventional mortgages are great for people who:
- have good credit and a low debt to income ratio
- can put 20 percent down
- don't qualify for more desirable government loans, like a VA loan