Pros: Why you should consider a conventional mortgage

• You have more choices in mortgages Conventional mortgages either come with fixed-interest rates for the full term of the loan, or Adjustable-rate mortgages (ARMs) which have an initial low fixed-interest rate and once the initial period is over, the interest rate will adjust every 6 months. Fixed-interest rate mortgages commonly come with 15-, 20-, and 30-year loan terms. This means your interest rate will remain the same for the length of the mortgage, and you’ll have to pay off the mortgage over the agreed-upon time. Adjustable-rate mortgages (ARMs) have an initial low fixed-interest rate during the introductory period of the loan. Once this introductory period is over, the interest rate will adjust every 6 months.

Fund fact: Your credit score impacts the interest rate lenders will offer you.

• You have more control over mortgage insurance, if you have to pay PMI, your PMI payments will automatically stop once your home equity reaches 22%. Home equity is the difference between the amount you owe on a property and the property’s current market value. To save even more on PMI payments, when your home equity reaches 20%, you can ask your lender to remove PMI from your mortgage fees. In contrast, if you get an FHA loan and make a down payment of less than 20%, you would be required to pay a mortgage insurance premium (MIP) for the entire length of your loan.
• You can borrow more money If your credit score is over 700 and you meet the other jumbo loan qualifying criteria, you can borrow up to $1.5M. If your credit score is above 740 and you meet the other jumbo loan qualifying criteria, you can borrow up to $3M.

Cons: Why a conventional mortgage may not be right for you

• Your credit score is below 620. The eligibility requirements for conventional loans are more stringent than government-backed loans. Conforming loans are sold to Fannie Mae or Freddie Mac soon after being created to help keep mortgages affordable for homebuyers. Once a Fannie or Freddie buys a loan, the lender can use the money from the sale to fund more mortgages. While this is for the greater good of all homebuyers, on an individual level, if your credit score is low, you may find it challenging to qualify for a conventional loan.
• You have a high debt-to-income ratio (DTI). Debt-to-income ratio is the difference between your gross monthly income and the total amount you need to pay toward debt each month. If you spent half your monthly income on bills and debt, your DTI would be 50%. Many mortgage lenders will not approve a conventional mortgage for homebuyers with a DTI higher than 43%. On the other hand, FHA loans can be approved for homebuyers with DTIs up to 50%.

Fund Fact: Homebuyers with DTIs up to 50% may also be eligible for a conventional loan with Better Mortgage.

• You have had past bankruptcies and foreclosures. The eligibility criteria for government-backed mortgages are more relaxed. As a result, past bankruptcies and foreclosures are forgiven much faster. Homebuyers with recent bankruptcies or foreclosures which would otherwise be approved may need to wait longer before a lender approves them for a conventional loan. And in some cases, the homebuyer’s loan may not be approved at all.