If you or your property doesn’t qualify for a government-insured mortgage like an FHA or VA loan, then the right conventional loan can still help you finance your home. In addition, many government-insured loans in Texas cannot be used for cash out refinancing, so a conventional loan may offer you more options than other loan types.
Conventional Mortgage vs. Government-Insured Loans
There is always a certain amount of risk to lenders when they loan out money. Often, the government will cover losses through various programs. This can benefit both the lender and the borrower—provided certain conditions are met.
For conventional loans, this insurance is often provided through a private company rather than the government. This can allow for a bit more freedom with the loan, but it can also be more costly to you if you have poor credit or low income.
There are a few ways that lenders mitigate risks on conventional mortgages. One way is to require a large down payment. This reduces the amount of loan money that is at risk for not being repaid. Another way is through higher interest rates. If the amount paid down is less than 20%, then the lender will generally charge a mortgage insurance premium each month to cover private insurance.
Finally, lenders will have stricter qualification requirements for conventional loans. If you have good credit, then you will represent less risk to the lender, making you a better candidate for a conventional mortgage.
Fixed Rate vs. ARM
The interest you pay on a conventional loan depends on the type. There are two ways that interest is managed: fixed-rate and adjustable-rate.
- Fixed-Rate Mortgage: Depending on the economy, interest rates may be high, low, or somewhere in between. During periods when interest rates are low, a fixed-rate mortgage may be the way to go. Fixed-rate loans keep the same interest rate during the life of the loan, so locking it in at a low rate early can save you money in the long run.
- Adjustable-Rate Mortgage: Unlike fixed-rate mortgages, the interest on adjustable-rate loans (ARM’s) will fluctuate with the market. This can be an advantage if interest rates drop, but it is unpredictable, and your monthly payments may increase dramatically.
For short-term mortgages, adjustable-rate loans are usually better, since you’ll be able to take advantage of lower interest rates without sticking around for dramatic increases. Fixed-rate loans, on the other hand, tend to be better over the long run.
Advantages of Conventional Loans
Since they are not backed by the government, conventional loans do not have the same requirements on property or background that FHA and VA loans have. Also, they will tend to have lower interest rates for those with good credit.
- Home Equity: Since conventional loans tend to have higher down payments, they can make it easier to build equity fast by allowing you to pay for a larger part of your home’s value right at the beginning.
- Refinance Mortgage: If you have been able to build up credit through your current mortgage, you can often refinance to a lower interest rate. You might also be able to eliminate monthly mortgage insurance premiums.
- Cash Out Refinance: If you are in need of some extra cash, getting a cash out refinance on your mortgage can be a good option. In Texas, conventional mortgages are one of the main ways to do this, since government-insured loans cannot be used for cash out refinance.
The right conventional mortgage can help those who don’t qualify for government-insured programs or who have good credit. When considering a conventional loan, it is important to remember that:
- Conventional loans are not bound by the same requirements as FHA or VA loans
- They may be fixed-rate loans or adjustable-rate loans
- Better credit will usually translate into better interest rates
- Higher down payments will allow you to build equity faster
Why Choose Patty Newby
When searching for financing options in Frisco, TX, you need look no further than Patty Newby. We start by examining your entire financial profile, including assets, income, etc. From there, we can determine the best mortgage solution for your situation. For more information, give us a call!
About Frisco, TX
Named as one of the best places to move to by Forbes, Frisco, TX, was the fastest-growing city in the nation from 2000 to 2009. Its rapid growth is due largely to the extensive suburban expansion that occurred in the early 90s around the Dallas-Fort Worth area, during which Frisco’s population quadrupled in number. Frisco is located 25 miles from the DFW International Airport, and it is home to a variety of sports venues, including Dr. Pepper Ballpark, Toyota Stadium, and a new Cowboys center called The Star, which will be open in time for the 2016 NFL football season.