Who does conventional home loans in Papillion NE? The conventional home loan is considered the standard mortgage program and if you fit in it’s guidelines it is almost always the way to go. If you are purchasing an home in Papillion NE we can review your credit and finances to see if conventional home financing is right for you.
Why is a Papillion NE conventional home loan the way to go?
There are other more niche products available. FHA is an excellent program for buyers with less than perfect credit and VA home loans are fantastic for active military and veterans. But if you have good credit, good income, and some assets available than conventional financing is usually the best option. There are a few reasons for this.
Great mortgage insurance rates
Most loans require some form of mortgage insurance. This insurance is used to protect the lender or government against loan defaults. It provides no benefit to the home buyer so the lower the policy the better. The mortgage insurance on conventional loans is based on the down payment and credit score of the buyer, but it is almost always lower than other loan programs. The best, and really only, way to get a MI quote is to contact a local mortgage lender.
Conventional mortgage insurance is not permanent
Since mortgage insurance is not a benefit to the home buyer, getting rid of it as quickly as possible is the goal. Unlike FHA, conventional mortgage insurance drops off once you get to 20% home equity. This can be done a few ways. You can just wait for it to drop off once you pay your loan down to 80% of the purchase price, or we can monitor your home value and try to get it off much sooner. For example, if you bought a house a few years ago for $100,000 and it is now worth $125,000 you gained 20% equity just in the home appreciation. Our team will email you monthly home reports shortly after closing that monitor you home value and mortgage balance. As soon as we get to that 20% equity we can get to work removing the MI.
Conventional loans provide options for mortgage insurance
The standard way to pay your mortgage insurance is with a monthly premium added on top of your payment. However, conventional loans will give you a few options to structure your mortgage insurance.
Instead of paying mortgage insurance monthly, you can choose to make one flat payment at closing. Just like monthly mortgage insurance, the amount you will pay is based on credit score and down payment. It can range from .5% to 3% of the loan amount. It generally ranges between 3 and 4 years of monthly insurance so if you think you will not get rid of the monthly mortgage insurance in that time, upfront MI might be the way to go. If you are high on debt to income ratios it is also a good way to get your monthly payment down.
Lender paid MI
You can also choose to have the lender pay your monthly mortgage insurance for you. In exchange for a higher rate, the lender will make the payment. This will lower your total monthly payment, but it is important to remember that mortgage insurance will eventually drop off a loan. Taking the higher rate to avoid monthly MI is permanent and does not lower when you have 20% home equity.
Conventional loans can be used for vacation homes and investment properties
Conventional is pretty much the only low down payment option for second/vacation homes and investment property. You can have up to 10 conventional loans active at one time (some lenders will limit this to 4) making it an excellent program to build a property portfolio. If you are looking to buy a home in some warmer weather or want a house to stay at over the holidays, conventional offers a second/vacation home option that only requires a 10% down payment and offers rates similar to primary home conventional loans.
Why would I not use conventional home financing?
Conventional home loans are typically the first choice for most home buyers, but there are reasons to use other programs.
Conventional loans are sensitive to credit score
The conventional home loan offers great rates with great credit, but with imperfect credit it may not be the way to go. Both the rate and mortgage insurance increase as the credit scores get lower and at a certain point it is time to start looking at FHA financing. The FHA home loan program has a flat MI rate and is less sensitive to credit score. Once the credit score is below 640, conventional financing is no longer available and FHA is the only option.
Conventional loans are not assumable
This is an option available on FHA and VA, but not conventional. Though rarely used the last 20 years due to consistently low rates, the ability to assume a loan could be useful in a rising rate environment. On FHA and VA, a buyer can take over the sellers loan. If the seller has a low rate and current rates are much higher, this could be an excellent selling point. Conventional does not allow someone else to take over a loan. Each loan is attached to the person that took out the financing.
Conventional loans are more strict on debt ratios
With higher debt to income ratios you may not qualify for conventional financing even with great credit. Conventional loans are limited to 50% debt to income. That means all of your debts, including the new house payment, can only be 50% of your gross monthly income. If you are self-employed or have income that cannot be verified, it may be more difficult to use conventional financing.
Conventional loans have a fairly complex automated approval process. The only way to know if you qualify is to contact a local lender and go over a complete application. If you are looking for Papillion Ne conventional home loan, we are happy to help.
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