Any potential homebuyer will quickly discover that there are many different loan products out there to meet the needs of unique buyers. Generally, when discussing different mortgage types and talking about the advantages of conventional mortgages, we are comparing a conventional mortgage to an FHA loan. FHA loans are certainly ideal for a select group of buyers but there are some distinct advantages that conventional mortgages have to offer to homebuyers. Below are 3 advantages of a conventional mortgage.
1. Conventional Loans Have No Mortgage Insurance Requirement
Mortgage insurance is required with any FHA mortgage for the life of the loan. With conventional mortgages, Private Mortgage Insurance (PMI) is required on any loan on which there is less than a 20% down payment. If you have at least a 20% down payment you will not pay for mortgage insurance. And, if you do have PMI, it is not required for the life of the loan. You can get rid of PMI once your home reaches 80% equity of the original purchase value or if you refinance.
2. Conventional Mortgage Loans Have Fewer Stipulations
Conventional mortgages are privately backed and tend to have far fewer regulations than an FHA mortgage which is backed by the government. FH loans also have stipulations regarding PMI, who will occupy the home, more paperwork, and more but conventional mortgage loans tend to have fewer stipulations.
3. Conventional Mortgage Loans Are Ideal for Investment Properties
If you are buying a home as an investment property than a conventional loan is the loan for you. The home being purchased cannot be a vacation home, rental property, or a home you intend to flip or it will not qualify for an FHA loan. This is because FHA loans are designed to promote owner-occupied homeownership. For this reason, when buying an investment property, a conventional loan is most likely the ideal choice.