4 Reasons to Buy With a Conventional Mortgage Loan

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Conventional loans are the little black dress of the mortgage world — always in style. Learn why one is worth considering if you want to buy a house. 

If you’re in the market for a new mortgage loan so you can buy a house, you have options. If it’s your first time buying and your credit score isn’t stellar, you might consider an FHA loan. If you’re a retired or active-duty military service member, you likely have access to a VA mortgage loan. And if you’re hoping to buy in a rural area and don’t have a high income, a USDA loan might be just the ticket. But for many people, a conventional mortgage loan is worth at least considering on your journey to homeownership. Here’s why.

1. You’ll have your pick of lenders

It’s very easy to find a conventional mortgage loan, as opposed to more specialized home loans because just about every mortgage lender offers them. Conventional mortgage loans are the most common type of mortgage and account for 70% of all home purchases. You can find them offered by both traditional and online-only banks, credit unions, and even online lenders. As a result, if you decide to go with a conventional loan, it won’t be a hard to find several to get pre-approvals from — thereby enabling you to save money on a mortgage and find the best lender for you.

2. Your agent will know how they work

If you’re a first-time home buyer, you likely have a lot of questions about the whole process, and that includes mortgage loans and how they work. The Ascent offers a lot of excellent information about mortgages, but you may also want to consult your real estate agent, as they can be your best friend on your journey to homeownership.

It’s much more likely that your agent has experience with conventional loans as opposed to some government-backed options like VA and USDA loans. If you want to buy with one of these loans, it might require more legwork to find an agent who can speak with authority on the subject. You won’t have to jump through hoops to find one who knows conventional loans, though.

3. They often come with flexible down payment options

It is overwhelmingly likely that you will have to make some kind of down payment if you buy with a conventional loan. But it likely won’t have to be 20%, and could be as little as 3% if you have an exceptional credit score.

It’s worth noting that if you buy with a conventional loan and put down less than 20%, you will have to pay for private mortgage insurance (PMI), which adds a chunk of money to your monthly mortgage payments. This protects your lender, rather than you — but it can be canceled once you reach 20% equity in the home. And unlike the mortgage insurance premiums (MIP) that you’d pay if you got an FHA loan, there is no upfront cost for PMI alongside ongoing monthly costs.

4. Sellers may be more likely to consider your offer

It’s unfortunate, but some types of mortgage loans have an undeserved reputation among home sellers (and selling agents). Many agents and sellers are less familiar with government-backed mortgages like USDA and VA loans, and they may be concerned that requirements to use one mean that a home is less likely to pass a specialized inspection, resulting in a headache for a seller. This is particularly insidious for VA loan buyers, because the VA loan is one of the best benefits offered to military members, and if you qualify for one, VA loans are worth exploring further.

Some sellers might also be less inclined to accept an offer from an FHA loan borrower, wrongly believing that they are in less stable financial shape to buy or that an inspection could turn up costly problems with the home. The National Association of Realtors found that some agents even wrongly believe that FHA loans take longer to close and may steer sellers away from accepting offers from FHA borrowers. Using a conventional loan may help you get an offer on a home accepted.

It’s worth noting that you may have a harder time qualifying for a conventional loan than a government-backed loan, due to more stringent credit score and debt-to-income ratio requirements. But if you have a strong credit score and can handle making a down payment on your new home, give conventional loans a look.

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