6 Benefits of Conventional Loans

Aug 02, 2023
8 People Read
Find out the benefits on conventional loan with these six tips.
Table of Contents
  1. 6 Benefits of Conventional Loans
    1. Flexible Rates
    2. Cancellable Mortgage Insurance
    3. Higher Loan Limits
    4. More Options for Loan Terms
    5. Seller Concessions
    6. Streamlined Refinance Process
  2. The Bottom Line

Conventional loans are often seen as the Cadillac of mortgages. For those who qualify, they often offer better terms and more financing options for borrowers. 


However, conventional loan requirements are typically more stringent and may have extra fees assessed on top of your monthly mortgage payment.


Are you thinking about applying for a conventional loan? This article discusses six benefits of conventional loans and some helpful tips on how to secure a mortgage this year.


6 Benefits of Conventional Loans


While not everyone will qualify for a conventional loan, there are some clear advantages for those who do. Here are six benefits of conventional loans:


Flexible Rates


Borrowers with a strong credit profile will receive flexible rates compared to other government-backed loans. This means conventional loans carry less extra costs, including reduced mortgage insurance and lender fees.


» MORE: Understanding Credit Scores in the Mortgage Process


Cancellable Mortgage Insurance


Borrowers making a down payment of less than 20 percent will be required to pay private mortgage insurance (PMI) each month. 


However, lenders will cancel the mortgage insurance on your conventional loan once you reach 78 percent loan-to-value on the home.


On the other hand, government-backed mortgages like FHA loans have mortgage insurance premiums tacked on for the life of the mortgage, increasing the overall cost of borrowing.


» MORE: How Debt-to-Income Ratio Influences Mortgage Approval


Higher Loan Limits


Borrowers looking at higher-priced homes or buying in high-cost areas may need increased loan limits on their mortgage. 


Luckily, conventional loans give buyers the option to finance higher amounts of debt into their mortgage to buy more expensive properties.


More Options for Loan Terms


Conventional loans also give borrowers more options when it comes to loan terms. Most lenders issuing conventional loans offer mortgage terms of 10 years, 15 years, 20 years, or 30 years on their loans.


Having more term options makes it possible for borrowers to pay off their mortgage faster and save more money than if they only had a traditional 30-year mortgage to choose from.


» MORE: 5 Tips for Understanding Traditional Mortgages


Seller Concessions


Conventional loans may allow for a higher percentage of seller concessions, which can help cover some of the closing costs or other expenses associated with the home purchase.


Seller concessions are an arrangement where the seller agrees to pay for some or all of the buyer’s closing costs to make the home purchase feasible. These are negotiated between the buyer and seller during the purchase offer and contract phase.


Streamlined Refinance Process


Refinancing a conventional loan is often much easier than other government-backed mortgage refinances. This can be advantageous for homeowners in markets where interest rates are declining.


Additionally, government loans like ones issued by the FHA may require an additional upfront mortgage insurance premium payment when refinancing. 


» MORE: Understanding Seller Concessions


The Bottom Line


Conventional loans offer plenty of benefits to new homeowners, which is why they are typically the first choice for many borrowers.


It’s important to make sure you have a strong credit profile when applying for conventional loans, as a high credit score will translate into lower interest rates and better loan terms.


For more information about applying for a mortgage, check out our blog to browse our additional resources and helpful tips.


Related: How to Prepare for the Mortgage Application Process


Trending: 8 Tips When Saving for a Down Payment

Table of Contents
  1. 6 Benefits of Conventional Loans
    1. Flexible Rates
    2. Cancellable Mortgage Insurance
    3. Higher Loan Limits
    4. More Options for Loan Terms
    5. Seller Concessions
    6. Streamlined Refinance Process
  2. The Bottom Line