When you apply for a home loan, you have the option to apply for a conventional loan or a government-backed loan. Government-backed loans, such as VA and FHA loans, are insured through the federal government while conventional loans are insured through private companies.

The fees and additional costs associated with conventional mortgages San Diego, CA will vary depending on the mortgage lender.

Identification

Conventional mortgage loans, although not insured by the federal government, must adhere to the mortgage guidelines set by the Federal National Mortgage Association, known as “Fannie Mae” and the Federal Home Loan Mortgage Corporation, often referred to as “Freddie Mac.” Unlike federally insured loans, conventional mortgage and loans carry no guarantees for the lender in the event the borrower defaults.

Significance

Unfortunately, due to the lack of government insurance, conventional loans are at a higher risk for lenders. Therefore, if you wish to finance your new home purchase with a conventional loan, you must often meet much more strict credit and income requirements than those who finance their properties using an FHA mortgage or VA loan.

If the borrower makes less than a 20-percent down payment on the financed property, Fannie Mae and Freddie Mac guidelines dictate that the lender enlist a private insurer for the loan. Although you must pay the private mortgage insurance premiums each month, the Homeowners Protection Act of 1998 states that, once a borrower pays down 20 percent of the property’s original value, the additional charges must cease.

Types

Benefits

If you contain a good credit, a well and steady income and can afford the down payment, conventional mortgages San Diego may offer lower interest rates than their government-insured counterparts whereas FHA loans require a property to meet strict eligibility guidelines as far as price, location and habitability are concerned. Conventional lenders are not bound by the same bureaucratic regulations. Therefore, lenders can often process conventional mortgages more quickly than government-insured mortgages. Also, the higher down payment requirement of conventional loans helps you build equity more quickly.

Drawbacks

Unfortunately, the major drawback of a conventional mortgage is the difficulty they present for borrowers with less than perfect credit or that lack a substantial down payment. While FHA loans require only a 3.5 percent down payment, and a qualified borrower can obtain a VA loan with no down payment at all, most conventional lenders require a minimum down payment of five to 20 percent. In addition, the fees for beginning a conventional loan are set by the lender rather than dictated by the federal government and may exceed the fees associated with government-backed mortgage loans.

Call San Diego Mortgage & Realty for more information about conventional mortgages San Diego, CA: (858) 487-2208