With so many loan programs to consider, it can be hard to know which one will fit your situation. While knowing what type of market you’re entering can help put you on track for a successful home buy, it’s also a good idea to recognize sellers’ preferences. Some sellers prefer conventional loans over government-backed programs, but why? What about a conventional mortgage makes a buyer more attractive when making an offer?
Understanding Conventional Loans
The most common type of mortgage, a conventional loan originates or is served by private banks, credit unions, mortgage lenders, or other financial institutions. Unlike other loans, they aren’t backed by any government agency. Conventional loans often have more strict requirements than different loans because your lender is taking on greater risk.
Conventional loans are ideal for borrowers with strong credit history, typically a credit score between 620 and 740, and a sum of money for about 20% of the down payment. Down payments that are less than 20% require private mortgage insurance (PMI). Your debt-to-income ratio (DTI) should be under 43%. There are exceptions to these norms with some conventional first-time homebuyer programs offering lower qualifying credit scores and down payments as little as 3%.
Sellers’ Own Perceptions
Sellers often prefer conventional buyers because of their own financial views. Because a conventional loan typically requires higher credit and more money down, sellers often deem these reasons as a lower risk to default and traits of a trustworthy buyer.
Lower Chance of Requested Repairs
Many government-backed loans mandate certain criteria involving the condition of the property. These contingencies often lead sellers to correct any issues and make repairs prior to closing. This can sometimes delay closing.
Less Discrepancy in Appraisals
The last thing a seller wants is to have their property appraised for less than the asking price, especially halfway through a sale. Because FHA loans come with the protection of federal insurance, an FHA appraisal must also verify that the home meets minimum standards for health and safety. Nonfunctioning utilities or heaters, peeling paint, loose stair railings, or lack of smoke and carbon monoxide detectors all need to be remedied before an FHA loan can be approved.
Length of Time to Close
Conventional loans tend to close faster. In an April 2021 article, Forbes reported conventional loans closing three to four days faster than FHA or VA loans. Being pre-approved also has the possibility for a speedy closing process. Government-backed loans come with strict regulations and can often result in an extended closing process.
Choosing the Right Loan for You
While you should take these factors into consideration before applying for a mortgage, speaking to one of our Loan Originators may assist in easing your concerns. Know that we are here to help you make an informed decision based on your unique financial situation. Contact us today to learn more about the best loan options for you.
