Want a Low-Cost Mortgage Loan? Consider These Facts

When weighing your mortgage options, an FHA (Federal Housing Authority) insured loan may be your top pick. Before getting into a contract with a lender, consider the benefits conventional mortgage loans deliver.

Main Advantage of Conventional Loans

With a good credit score, combined with the ability to make a larger down payment, you are better off with a conventional loan than one backed by the FHA. Although FHA loans are attractive to homebuyers because of the lower down payment requirements, know that conventional loans also have their pros. They provide borrowers with the chance to bypass the mortgage insurance typically required for FHA-insured loans. You can avoid having to pay the monthly mortgage insurance associated with these government-backed loans.

Savings with a Conventional Loan

On April 5, 2010, FHA started requiring borrowers to pay a 2.25% upfront mortgage insurance rate, a change that applied to everyone, no matter how much their down payment is. Conventional mortgage loans, on the other hand, have no private mortgage insurance requirements, as long as a borrower is able to make a 20% or higher down payment. This allows them to reduce their mortgage-related expenses, paving the way for huge savings.

Overall Costs of Conventional and FHA Loans

FHA loans accept and qualify applications of homebuyers with lower credit scores, while also allowing them to make smaller down payments. However, there’s a significant drawback. The long-term costs may end up higher compared with those associated with conventional mortgages.

Refinancing: Possible with Conventional Mortgages

It’s possible for conventional mortgage loan borrowers to get refinancing, which can benefit them in several ways. Through refinancing, you can enjoy potentially lower monthly payments because of reduced interest rates. Becoming a home owner starts with finding the right mortgage. To do that, know all your options and choose wisely.