Conventional Loans
A conventional mortgage is a type of home loan that many people use to buy a house. It's called "conventional" because it's not backed or insured by the government (unlike some other types of mortgages).
Here's how it works in simple terms:
You Want to Buy a House: Let's say you want to buy a house, but you don't have enough money to pay for it all at once. So, you go to a mortgage lender to ask for a loan to help you buy the house.
You Make a Down Payment: To get a conventional mortgage, you typically need to make a down payment, which is a chunk of money you pay upfront. The size of this down payment can vary, but it's usually a percentage of the home's price. For example, if the house costs $200,000 and the down payment is 20%, you'd pay $40,000 upfront.
The Bank Gives You a Loan: The bank agrees to lend you the rest of the money you need to buy the house, minus your down payment. So, if you paid a $40,000 down payment on a $200,000 house, you'd need a $160,000 loan from the bank.
You Pay Back the Loan Over Time: Now that you have the loan, you'll need to pay it back over time. This usually happens in monthly payments, which include both the principal (the amount you borrowed) and interest (the fee the bank charges you for borrowing the money).
Interest Rate: The interest rate on your mortgage can vary depending on your credit score and the current market rates. A lower interest rate is better because it means you'll pay less over the life of the loan.
Fixed vs. Adjustable Rate: Conventional mortgages can be either fixed-rate or adjustable-rate. With a fixed-rate mortgage, your interest rate stays the same throughout the entire loan, making it easier to budget. With an adjustable-rate mortgage, your interest rate can change over time, which can make your monthly payments go up or down.
Repay Over Many Years: Most conventional mortgages have terms of 15, 20, or 30 years. This means you'll have that many years to pay off the loan completely.
Homeownership: Once you've paid off the loan, you fully own the house, and you no longer have to make monthly mortgage payments. You're a homeowner!
In a nutshell, a conventional mortgage is a way to buy a house with a loan from a bank. You make a down payment, borrow the rest of the money, pay it back over time with interest, and eventually become the proud owner of your home.