Conventional Financing Advantages/Disadvantages

Advantages

• Processing Time-The typical processing time on most conventional loans is about 2 to 4 weeks compared to 5 to 6 weeks on a VA and FHA loans.
• Easy to Obtain– In times when money is plentiful, conventional loans are easily obtained.  Even rural areas usually have a savings and loan association which will make conventional home mortgage loans.
• Few Requirements on Appraisals– Conventional loans have higher maximum loan amounts then FHA and VA.  Therefore, higher priced property may be financed using conventional financing.  Loans are available up to $2,000,000 in some areas.
• No Discount Points Required– Conventional loans usually do not require the seller to pay discount points.  In some areas it is customary for conventional loans to have 1 to 3 discount points;  however, these points may be paid by the buyer or the seller.  Occasionally, discount points may be used to obtain a lower interest rate on the conventional loan, and once again, these points may be paid by the buyer or seller.  If the buyer pays his own discount points they may be tax deductible ad prepaid interest.

Disadvantages

• Money May Be Scarce– In times of tight money, conventional loans may very difficult to obtain, or discount points may be charged for making money available.  In some areas conventional lenders only want to make adjustable rate mortgages, not fixed rate mortgages.
• Cash Outlay is Greater– Conventional loans generally require more down payment than FHA or VA loans, and the closing costs are usually higher than FHA or VA loans.  90% and higher conventional loans require the payment of private mortgage insurance.
• Buyer Qualification– Conventional buyer qualifications are more stringent than FHA or VA and thus fewer buyers can qualify for loans.
• Interest Rates– Traditionally, the interest rates on conventional loans were higher than the interest rates on VA or FHA loans – although today they should be almost identical.