Are you hoping to move to the beautiful city of Phoenix, AZ? Or do you already live there and want to find your next home in the same area? Buying your dream home can be very expensive, and like most Americans, you probably cannot afford the home purchase price upfront.
Fortunately, there are mortgage loans to help pave the way toward homeownership. There are multiple loan products on the market that you may qualify for, but the most common type is called a conventional loan.
Aspects of a Conventional Loan
Conventional loans are borrowed assets used to cover the cost of a house that are not backed by a government agency. The lender gives the money to the borrower for the full price of the house, and in exchange, the borrower agrees to pay back that amount over time with added interest.
Home buyers in Phoenix have used conventional loans for decades to become residential property owners, and you can achieve the same dream through District Lending’s conventional home loans.
Conforming Vs Non-Conforming Loans
Conventional loan limits are set by two agencies called Fannie Mae and Freddie Mac, which are regulated by the government. Home prices that are above this maximum loan amount are called non-conforming loans, also known as jumbo loans.
Conventional loans that are below that limit are considered conforming. Jumbo loans have higher standards to obtain because they are riskier to mortgage companies.
Difference Between Conventional Mortgages and Others
Two other common types of loan programs include FHA loans and VA loans. These loans are backed up by government agencies, the Federal Housing Administration and the Department of Veterans Affairs, respectively.
Conventional loans are not backed up by a government agency. Rather, they might be backed by Fannie Mae and Freddie Mac, unless they are non-conforming.
For the average conventional mortgage, borrowers can expect to wait 30-60 days from application to approval. This time is used by the lender to investigate the borrower’s financial situation and other factors that affect the terms of the loan. This number will change if there are special circumstances with the property or borrower.
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What Affects Conventional Mortgage Costs?
A conventional mortgage allows borrowers to afford the prices of homes without having to pay entirely out-of-pocket. Instead, they agree to pay back the cost of the loan over time with added interest.
What makes this loan product a conventional mortgage is the fact that it is not insured or guaranteed by the government.
There are several factors that impact the length of a conventional mortgage as well as the total cost and monthly premiums.
A conventional loan typically requires that you make a down payment of at least 3% of the cost of the home. If you put in a more sizable down payment, the total cost of the loan, as well as your monthly payments, will decrease.
An important number to remember is 20%. That is the minimum percentage of a down payment that you have to make to avoid paying insurance for the conventional mortgage.
Mortgage insurance is a tool lenders use to protect themselves from riskier borrowers that cannot cover that 20% down payment. If you pay below that number, you will likely have to pay insurance premiums each month or upfront to secure the loan, increasing your payments.
Conventional loans also come with interest rates. This rate is calculated using the principal amount of the loan, so the lower your interest rate, the less money you will have to pay during the life of the conventional loan.
Several factors can affect the interest rate, including your credit score and the Phoenix real estate market. In general, fixed rates for a conventional loan are much more desirable than adjustable rates if you plan to live in the home for a while.
A borrower’s credit scores directly impact the type of loan they qualify for and the rate of interest they can obtain. Generally, a conventional loan requires a minimum credit score of 620 to acquire capital. Any lower and you may have to search for something other than conventional mortgages. A high credit score will give you access to better home loan terms.
These costs are fees that must be paid when you close on the transaction. They might go to the real estate agent, your attorney, your lender, or the local government for a title search. For most conventional mortgages, low closing costs can be wrapped up in the loan, so your upfront payment is reduced.
Why District Lending?
When you are in the market for a house in Phoenix, securing a home loan quickly and easily is crucial to being a competitive buyer. Get free quotes on numerous types of loans, such as a conventional mortgage or FHA mortgage, so we can secure your home loan soon.
Let’s work together to find your dream home in Pheonix, AZ by discussing your conventional mortgage needs. Contact us today to get started on the pre-approval process.
Play around with our mortgage calculator to see what the maximum loan amount that you can afford is.