Conventional Mortgage Loans

A conventional mortgage is the standard mortgage offered by a private lender, such as your local credit union or other financial institution.

With a conventional mortgage, your lender is assuming the risk in case you can’t pay. This is different from programs such as the Veteran Affairs (VA) Loan or the Federal Housing Administration (FHA) Loan, which are partially backed by the federal government so a private lender is taking less risk.

Most conventional mortgages will require a certain credit score to qualify. For VA or FHA loans, the criteria are different and you may qualify with a lower credit score.

A conventional mortgage means you get to choose your type of interest and term, and you choose whether you get a home inspection. Your lender may or may not ask you to get your home appraised to check that the purchase price matches the market valuation.

With a FHA or VA loan, there are strict requirements to pass the appraisal process. For this reason, some sellers may prefer not to sell to a buyer who is using these loans. They might prefer a buyer who has a conventional loan.

A fixed-rate mortgage means you’ll pay the same interest rate throughout the life of your loan. This is a great idea if market rates are low when you secure your loan because you’ll be protected if rates go up. On the other hand, market rates could fall below your fixed rate and you’ll be stuck with it unless you do a home refinance for a lower rate.

An adjustable-rate mortgage (ARM) means you agree to a relatively low interest rate for a certain number of years. In that time, your rate may be lower than for a fixed-rate mortgage.

You might be able to choose to stay at a fixed rate for three, five, or 15 years. In that time, your monthly payments will be quite low.

Once the fixed-rate period ends, your rate will go up and down with the market and you may start paying more interest than if you had chosen a fixed-rate mortgage.