Tue, 07 Dec 2021

The real estate industry has long been booming. It will continue to thrive even amid the COVID-19 pandemic. Why? Most people deem shelter a basic human need, and people will always look for a home.

Modern times, however, have evolved our needs for shelter. It is no longer about having a place to live and stay. It's about taking into account a home's aesthetics, functionality, safety, and comfort. Especially during the pandemic, many individuals and families think about buying a crisis-proof house. And that is where a mortgage comes into the picture.

A mortgage is always a viable solution for a home purchase, especially for the average family. Why? Not everyone can afford to purchase and own a house. When it comes to this, you have the option to choose between a conventional and a non-conventional loan.

The question, however, is which one should you choose? Let's take a look at the difference between the two.

Understanding Conventional vs. Non-Conventional Loan

Getting a mortgage is a practical solution for a home purchase, particularly if you don't have the financial means. It's good that home loans exist to suffice the needs of aspiring homeowners. Also, it's excellent that conventional and non-conventional loans are made readily available in the real estate market. Take note of the following:

  • Conventional Loan: Private lenders offer this loan type with typically stringent requirements for home borrowers. It isn't secured or backed by government institutions at all. However, it must still conform to two of the largest conventional loan investors, Fannie Mae and Freddie Mac.
  • Non-Conventional loan: Government agencies back up this type of loan. These include the Federal Housing Administration (FHA), Department of Agriculture (USDA), or Department of Veterans Affairs (VA). They exist to help borrowers with low-income to secure a house.

Delving Deeper into Loan Features and Requirements

To choose between a conventional and non-conventional loan, you must factor in their loan features and conditions. From there, you'll be able to assess which loan type is best suited for you. That said, consider the following information:

  • Conventional Loan: Private lenders who offer this mortgage type typically require borrowers to have a good credit score, low debt-to-income ratio, and about 20 percent down payment. If qualified, you will usually have a 15 or a 30-year loan term. As far as interest is concerned, you'll either have an adjustable-rate mortgage (ARM) or a fixed-rate mortgage. As a private lender offers this loan, you'll typically have private mortgage insurance (PMI) to pay. This is a protection for the lender in case you default on your loan.
  • Non-Conventional Loan: These government-backed loans are offered to specific markets. For one, the FHA loans are typically for low-to-moderate-income buyers who want to buy a house for the first time, where borrowers usually put in a 3.5 percent down payment. Also, the government offers VA loans to qualified military service members, veterans, and their spouses, who have no down payment. Lastly, USDA loans cater to low-income buyers in rural areas, which require no down payment too.

Deciding on What to Choose in the Pandemic

It can be particularly confusing to choose between a conventional and non-conventional loan. But considering the previously mentioned specifics will help you arrive at a practical decision.

For instance, you can apply for a VA loan if you are a surviving spouse of a veteran. If you live in a rural area and can't afford regular home loans, the USDA loan can be your best option. However, you can apply for a conventional loan if you have a good credit standing and a steady source of income so that you'll be able to take advantage of its benefits.

In addition, it helps to understand the real estate market in a pandemic to make the right decision. According to The New York Times, getting a mortgage is affordable during the COVID-19 pandemic. Why? The interest rates offered by most lenders are about three percent, which almost hits the lowest in the record. Therefore, it may be a good idea to apply for a mortgage during this pandemic.

While a mortgage is a practical solution for a home purchase, choosing between a conventional and non-conventional loan can be daunting. To ease your confusion and help you make a decision, consider the valuable information discussed in this post. Remember to factor in your finances, qualifications, lender options, and the loan types best suited for you. With an informed decision, you are now ready to take the plunge into buying a house through a mortgage.

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