OakStar Bank Explains Conventional Loans

What Is A Conventional Loan?

Of all the things you are going to spend money on in your life, your mortgage is arguably priority number one. It is something that we all have to deal with.  Most, if not all, mortgage loans are conventional loans. There are different types of course, whether that be fixed-rate vs. variable rate or 15-year vs. 30-year. Regardless of the variation, you almost certainly need a conventional loan at some point in your life. The David Jacobson – OakStar Bank blog wants to walk through what a conventional loan is and why you need to know.

What is a Conventional Loan?

In short, a conventional loan is a mortgage that is not guaranteed or insured by any government agency. This includes the Federal Housing Administration (FHA), the Farmers Home Administration (FmHA), and the Department of Veteran Affairs (VA). Conventional loans are typically fixed rates but can sometimes be variable.

What makes a conventional loan unique is that it isn’t guaranteed by the government. Mortgages are either government-backed or conventional. The FHA and VA insure home loans made by private vendors in government-backed mortgages. This is not the case with conventional loans. These types of loans can include conforming loans, non-conforming loans, and subprime loans – to name a few.

Do I Want a Conventional Loan?

This is a loaded question. There is a real benefit to getting a government-backed loan. The most popular form of government-backed loan is an FHA loan. These loans are so popular because they require just a 3.5% minimum down payment, comparable to the 3% minimum for conventional, but have a lower minimum credit score (580-620). For people with bad credit or even people who are looking at buying their first home, an FHA loan is a viable option.

However, there are drawbacks. The biggest being that mortgage insurance is required, which means that FHA loan users will be subject to insurance premiums. Government-backed loans are also very bareboned. Purchasing money mortgages or refinancing your home is possible, but more difficult. If your credit is good enough, we recommend you go with a conventional loan. The 3% minimum down payment is still cheaper than the FHA minimum and you have more flexibility with your options.

Let David Jacobson – OakStar Bank Help

We know how stressful applying for and securing a loan can be. We want to help walk you through it. Contact us at (417) 830-7300 or visit our website for more info.



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