Conventional loans, otherwise known as traditional funds, can be defined as the usual standard method for the application and approval process of monies being granted by a lending institution. These monies are more commonly seen in the area of mortgages. Mortgage funds offer traditional and nontraditional ways to attain them. These funds consist of a standard set of criteria, to purchase a home or property, which must be met in order to qualify for approval. The lenders utilize creative financing and government guarantee programs to qualify individuals for mortgage funds who normally cannot qualify under the conventional loan standards.Mortgages typically require 10%-20% down as a payment to the lender in order to receive 80%-90% financing of the purchase price when it comes to a conventional loan. Depending on the area, 10%-20% could be a lot of money to provide, out of pocket, to purchase a home. These funds also require that the applicant have stable and consistent employment income, and that the employment income be documented and verified. Conventional loans also require that the lending institution appraise the home in question to validate its worth. A home inspection; however, is not required or contingent upon for this type of approval.
Programs such as the FHA, Federal Housing Administration, and VA or Veterans Administration provide alternative options to conventional loans. FHA loans differ than the traditional ones because a 3% down payment is all that is required. In addition to the 3% down, most if not all of the closing costs (which are usually the buyer’s responsibility) can be wrapped into the FHA mortgage monies. The VA loan requires no down payment, and is only offered to Veterans and their spouses. Both types of creative financing have purchase limits, unlike a conventional loan mortgage. A person should pray and seek godly counsel when deciding which process is the best for them.
Conventional loans are being phased out because of the requirements placed on the buyer for much money up front. These do not seem to offer any benefits with the exception of no financial limit, and no inspection requirement. With the housing costs on the rise, many people cannot afford the 10%-20% down payment that this requires and are therefore utilizing the creative financing options more frequently. It is said that within the next decade, the conventional loan will be totally phased out, and replaced with more options for creative home purchase financing.