One of the first questions I am asked by my customers is: “what type of mortgage is best for me?” And to answer that question, I will usually ask them a series of questions to get a better understanding of their needs. After we go through this exercise, I will lay out several options, and then discuss what the differences are in those types of mortgages. And I’ve found that as my clients understand the different types of mortgages better, they are more able to make an informed decision.

One of the most important types of mortgages to understand is the conventional mortgage. This loan is extremely popular and well suited for many types of borrowers. It can be offered as an adjustable or fixed rate option, meaning the interest rate can be locked in for the life of the loan, or for a set period of time and then “adjust” to another rate based upon the market rates at that time. If the rate is fixed, then the term (length) of the mortgage must be determined. Though commonly either 15 or 30 years, there are loan programs available for different lengths as well, if they suit a client’s needs better.

To qualify for a conventional mortgage, underwriters will look at debt to income and loan to value ratios. The loan to value is very important in a conventional loan, because it determines if, and how much, mortgage insurance is required for the loan. Mortgage insurance (MI) is an additional monthly insurance charge that you pay if there is not enough equity in the house. As a general rule of thumb, if the loan to value is less than 80% (meaning you will put down 20% or more), then there will be no MI. But the days of required 20% down payments are long gone; instead, you can put down as little as 5% and still qualify for a conventional mortgage, you will just pay MI until your LTV drops below 80%.

There are a number of other pros and cons to a conventional mortgage, which can be very different based upon your needs, and only a qualified loan officer can give you that information. So contact me and we can get started on determining if a conventional mortgage makes sense for you. And if you have any questions or comments about conventional loans, please leave a comment.