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The U.S. economy is built on home ownership. After World War II, in particular, it was important for as many Americans as possible to own homes. This allowed the U.S. economy to be strong for decades.
Home ownership in the U.S. was built upon conventional mortgages. These types of mortgages are provided by banks, savings & loans, and mortgage companies.
How a Conventional Loan Works
Simply put, a conventional loan is a loan against a home that someone wants to buy. A lender (mortgage broker) will offer a home buyer a loan based on the value of the home they want to purchase.
Features of a Conventional Mortgage
Just like the rest of the U.S., in Dayton, conventional loans are governed by rules set forth by Fannie Mae. These guidelines help to keep mortgages fair and predictable.
- You need to have a credit rating that shows a history of paying off debt.
- Your income needs to be sufficient to support the debt that you are incurring.
- There is a down payment required:
- As little as 3% for a fixed rate loan
- 10% for an adjustable rate mortgage
- Any loan is available for pre-approval to make the home purchasing process easier
The conventional mortgage is the type of mortgage that most people are familiar with. Depending on the terms that you negotiate, the home loan can be 15 to up to 30 years long. Each mortgage payment will include both interest and principle on the conventional home loan.
Key Features of Conventional Loans
FHA loans, the most frequent alternative to conventional home loans, are designed for first time home owners. For anyone who has purchased another home, a conventional loan is the most common option.
Conventional loans have some distinct features:
- A down payment is required – a 3 percent minimum
- Mortgage insurance is required for high loan-to-value ratio loans (typically 80%). All FHA loans require mortgage insurance (MI).
- A conventional mortgage typically only requires a single premium or a monthly premium. An FHA loan requires both.
- Conventional mortgage insurance is no longer required after a 78% loan-to-value.
- Conventional loans can cover a much higher loan amount than FHA loans.
Simply put, a conventional loan is not guaranteed by any government agency. That puts all the risk on the lender and borrower. This can change the terms of the mortgage significantly.
Best Conventional Loans in Dayton
The key to getting the best terms on conventional loans in Dayton, Ohio, relies on choosing a loan company (mortgage broker) that can create loan terms that are favorable for you.
There are some things that you can do to get the very best from your mortgage:
- Improve your credit rating – Through solid effort you can improve your credit rating. The higher your credit rating, the lower your interest rate and the less expensive your mortgage will be.
- Save your down payment – The higher your down payment, the lower your interest rate, closing costs and monthly mortgage payment will be.
- Get pre-qualified – A pre-qualification (home loan pre-approval) allows you to know how much home you can buy, how much of a down payment you will need and how much your monthly mortgage payments will be.
- Work with a trustworthy company – The best mortgage company in Dayton can provide you with a great deal by helping you find the best terms on a 15, 20 or 30 year conventional fixed-rate mortgage.