Routing # 256078446
MORTGAGE KNOWLEDGE CENTER
PenFed Mortgage with Confidence
MORTGAGE
Do Sellers Prefer Conventional Loans?
What you'll learn: Why Some Sellers Prefer Conventional Financing
EXPECTED READ TIME: 6 MINUTES
January 7, 2022
Putting your home on the market requires a lot of hard work. And once it’s listed and the offers start coming in, as a seller, you’ll have some decisions to make. One of them may be what type of financing are you willing to accept — conventional, FHA, or VA. According to the National Association of Realtors (NAR), in 2020 – 62% of home buyers used conventional loans. Read on to see why some sellers prefer conventional financing and what you should consider when accepting offers.
Conventional Home Loans Close Slightly Faster
In an April 2021 article by Forbes, conventional loans closed three to four days faster than FHA and VA loans. Here are the numbers:
|
Loan Type |
Days to Close |
|
47 | |
|
50 | |
|
51 |
As you can see, that’s not a big difference. One thing to keep in mind is the above stats were for March 2020 through February 2021, which is during the pandemic. So, those times could be longer than normal.
Ellie Mae’s Origination Insight Report has stats from September 2019 through January 2021. Take a look.
|
Loan Type |
Days to Close |
|
Conventional Home Loan |
54 |
|
FHA Home Loan |
61 |
|
VA Home Loan |
61 |
So, conventional loans do close faster, but not by much. Although if you’re in a big hurry, accepting an offer with conventional financing could be your best option.
Conventional Loans Have a Higher Close Rate
Now let’s talk about which type of mortgage is more likely to make it to the finish line. Ellie Mae’s Origination Insight Report has stats from September 2019 through January 2021 for the percentage of purchase loan applications that closed from the previous 90-day cycle.
|
Loan Type |
% closed |
|
Conventional Home Loan |
79.9 |
|
FHA Home Loan |
76.6 |
|
VA Home Loan |
77.8 |
From these percentages, conventional loans do have a higher close rate especially compared to an FHA loan.
Of course, there are many reasons why a loan doesn’t close, and it might not have anything to do with what type of home loan product the borrower is using.
Here are some of the top reasons why a loan might not close.
- Inspection shows severe termite damage
- The home inspection uncovers other issues
- The appraisal comes in too low
- The title isn’t clear (i.e., liens, judgments, etc.)
- Buyers or sellers change their mind
- Natural disasters occur (fires, earthquakes, hurricanes)
Do conventional borrowers have better credit?
Conventional home loans have stricter credit guidelines than government loans like FHA and VA. For a conventional mortgage, the minimum score is 620. Although the best rates, go to borrowers with scores of 740 or above.
Let’s look to see what the average FICO score was for the mortgages that closed, according to Ellie Mae, in the same time period as referenced above.
|
Loan Type |
Average FICO Score |
|
Conventional Home Loan |
757 |
|
FHA Home Loan |
683 |
|
VA Home Loan |
723 |
From the scores above, conventional buyers tend to have a higher credit score. VA borrowers come next, followed by FHA. But, since the real estate crash of 2008, lenders have stiffened up their guidelines to ensure that borrowers are well qualified.
Conventional Loan Appraisals vs. Government Loans
Appraisal standards vary between conventional, FHA, and VA loans. Government loans have strict minimum property guidelines.
Properties being sold “as is” with deferred maintenance like extensive dry rot, bad roofs, broken windows, or termite damage will need buyers with cash or conventional financing.
That’s why some listings may say the property cannot be financed by a VA or FHA loan. There’s too much-deferred maintenance the seller won’t be fixing before the close of escrow. In that situation, FHA and VA won’t lend on the property.
VA & FHA vs. Conventional for Seller
As you can see from above, all three of these loan types, conventional, FHA, and VA offer reliable funding options that a seller can trust. And turning away FHA or VA borrowers can severely restrict their number of offers.
Unless a seller has a property that won’t pass a VA or FHA appraisal, generally, they should feel confident in the loan closing as long as the buyer has a preapproval by a reputable lender.
Of course, a seller has to look at how strong the borrowers are financially. But it’s good to put some myths to rest about conventional vs. government financing.
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Mortgage Products
Disclosures
1Conventional Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
2FHA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 96.5%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
3VA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.125 discount point, which equals 1.125 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $450,000; loan-to-value ratio of 95%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of $995.
4Jumbo Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 0.625 discount point, which equals 0.625 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, non-conforming, fixed-rate loan. Loan amount of $1,009,000; loan-to-value ratio of 70%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.
Routing #256078446
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