There are many loan
programs that are available to the consumer today. None has been around longer or
held up better than the conventional loan. The conventional loan is
probably the same kind of loan your parents and grandparents got when they bought their homes, and it is still
the most widely used loan product available today.
In general, a conventional loan is a fixed
rate loan that runs for a term of 15, 20, or 30 years. The interest rates are based on
the market's prime rate. The conventional loan programs are quite standardized and require standard information and
requirements for qualification.
Basically, a person must have an excellent credit rating, a steady job history,
a reasonable debt to income ratio, a steady income, and must have between 10 and 20% of the amount of the
loan to use as a down payment, since this type of loan will only lend 80 - 90% of the total value of the
property in question.
Conventional loans can be used for a mortgage
refinance, a bad credit mortgage loan and new home
purchases. When mortgage refinancing, you may not need the down payment if you
have enough equity in the home to include in the loan or if you are doing a streamlined refinance through your
current lender. Because this loan is straightforward and standardized, it is a consistent offering from all
lenders. This type of loan has been around for years and will be around for many
is a reasonable amount of risk on the part of the lender, and the borrower begins with equity in his
You should be able to find conventional loans
through every lender that you contact.
This means that the lenders are competing for your business and that helps the
rates stay lower so that the banks can stay competitive. This type of competition is
very helpful to the consumer, since you are looking for the best rates on a home loan. If you find a lender offering a
much higher rate on a conventional loan than others are offering, that is a red flag to stay
away. Competition may mean that some lenders are lowering their closing costs in order to entice you
to use them for this standardized loan.
This means that it can really pay off for you to shop around for the lender with
both the lowest interest rates and the lowest closing costs. Be sure to look at the APR
rather than the simple interest rate when comparing costs from one lender to another.