People who are selling a house can choose to accept offers from buyers who use different kinds of mortgage loans. Many sellers would rather have bids with conventional loans than government-backed loans like FHA or VA loans. There are a few main reasons a seller might prefer conventional loans when looking at offers on their home.
What is a Conventional Loan?
A conventional loan is a mortgage that is approved and paid for by a private lender, like a bank, credit union, or other financial institution. It is not insured or guaranteed by any government agency.
Conventional loans usually have stricter rules about credit scores, down payments, and the amount of debt compared to income than government programs. This is because the lender is taking on more risk without the government’s help.
Here are some common requirements for a conventional loan
- Credit Score – Usually 620 or higher
- Down Payment – Typically 20% to avoid private mortgage insurance (PMI)
- Debt-to-Income Ratio – Often below 43%
This type of loan works well for people who have good credit, a steady income, and enough money for a down payment. Some traditional programs for first-time homebuyers offer lower down payments of about 3% to 5%.
Why Sellers Prefer Conventional Loan Buyers
When reviewing and comparing offers on their home, many sellers prefer bids made with conventional financing rather than government-backed loans. Here are some of the main reasons why:
1. Fewer Repairs Requested
Loans like FHA and VA have strict guidelines on property conditions that must be met before they will approve financing. This often requires sellers to make repairs before closing. Conventional loans do not have such stringent requirements, so there is less likelihood of sellers incurring expenses to fix issues prior to sale.
For example, FHA requires peeling paint to be repaired and non-working utilities to be fixed. VA loans mandate termite inspections and treatment if necessary. Sellers want to avoid these extra repair costs.
2. Lower Risk of Appraisal Issues
With FHA and VA loans, the appraisal must ensure the property meets minimum health and safety standards. This increases the chance the appraisal will come in lower than the contract price if repairs are needed.
Conventional loan appraisals focus more on overall value rather than a detailed checklist of requirements. This reduces the risk of a low appraisal for the seller.
3. Faster Closing Timelines
Government-backed loans require extra paperwork, regulations, and processing compared to conventional loans. According to data, conventional loans close an average of 3-4 days faster than FHA or VA loans.
Sellers favor a quick, efficient closing so they can move on to their next home. Conventional loans provide a smoother, faster timeline without as much red tape.
4. Perception of Reduced Risk
The higher credit and down payment requirements of conventional loans give sellers confidence in the buyer’s financial strength. There is a perception that conventional loan buyers pose less risk of default.
Sellers feel more assured that the buyer has been thoroughly vetted by the lender and has more skin in the game with a larger down payment. This provides peace of mind around getting paid.
5. No Occupancy Requirements
With an FHA loan, the buyer must intend to occupy the home as their primary residence. VA loans also have occupancy stipulations for the buyer. There are no such occupancy rules for a conventional loan.
If the seller prefers to sell to an investor or second home buyer, they will need to accept a conventional loan offer rather than FHA or VA.
Considerations for Buyers
If you are interested in making an offer on a home listed as only accepting conventional financing, don’t fret. Here are some tips:
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Get pre-qualified or pre-approved for a conventional loan to show sellers you can get approved. This makes your offer stronger.
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If you don’t have 20% for a down payment, ask about conventional 97 programs that only need 3% down.
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Improve your credit score if needed so you meet the minimum requirements for a conventional loan.
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Ask the listing agent if the seller would accept an FHA or VA offer if you get pre-approved and submit a strong offer well above list price. Never hurts to ask!
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Consider using grant programs like down payment assistance to help boost your down payment amount if needed.
While conventional loans are preferred by many sellers, don’t rule yourself out if you need an FHA or VA loan. Competitive offers can still win out even if they require some minor repairs or longer timelines. Work with a knowledgeable loan officer to explore all your options.
The Bottom Line
Sellers often favor conventional loan buyers because they perceive them as lower risk with better credit/finances, less likely to request repairs, faster to close, and fewer appraisal hurdles. While government programs serve an important purpose, conventional loans align better with most sellers’ preferences and priorities.
Understanding why sellers prefer conventional financing can help buyers make wise decisions when structuring their offer. Conventional loans have distinct advantages to sellers over other loan types. Buyers should keep seller motivations and preferences in mind when crafting their purchase proposal.
FHA vs Conventional Loan: What Sellers Need to Know Before Choosing
When it comes to real estate and mortgages, it’s important to understand the difference between conventional and FHA loans, especially if you are a seller. In this blog, we will deeply dive into the pros and cons of each type of loan and what you need to know to make an informed decision.
We’ll explore the potential risks and rewards of working with each type of loan and how you can maximize your profits in both scenarios. Finally, we’ll cover the steps you need to take to ensure a smooth sale no matter which loan type fits your situation. So without further ado, let’s take a closer look at conventional vs. FHA loans and how you, as a seller, can ensure you get the best deal every time.
Sellers often prefer conventional mortgages because they usually offer lower interest rates and the qualification requirements can be more lenient than those of an FHA loan. Additionally, with conventional loans, sellers may not have to pay private mortgage insurance or other upfront costs associated with an FHA loan.
Why Do Sellers Prefer Conventional Loans Over FHA Loans?
When it comes to why sellers prefer conventional loans over FHA loans, there are many points to consider. From qualifications required to fees and costs of both loan types, sellers must pay attention to the details when making their decision.
One of the top reasons why some sellers opt for conventional mortgages is because they routinely require a higher credit score than FHA mortgages. With this type of loan, lenders are more likely to approve buyers with higher credit ratings who often have more capital available to put down on a home. This can be appealing to some sellers who want detailed information regarding their potential buyer’s financial situation before closing on a sale.
On the other hand, FHA loans may also be attractive to some sellers because they allow buyers to pay as little as 3.5% down, allowing them to take notice of those potential buyers who would’ve been unable to acquire a conventional loan due to insufficient funds available.
Additionally, the closing costs associated with FHA mortgages have traditionally been lower than those associated with conventional loans, and FHA down payments can be made in the form of a family gift or grant from an employer or charity organization.
No matter what type of loan you believe is best for your property and target market of buyers, understanding the differences between each type is key in making sure you get the most out of selling your house. To get a better understanding of closing costs and fees associated with each type of loan, it’s essential you do some research.
Ultimately,seller should find the best mortgage that fits within their budget while still meeting their needs when it comes time to sell. Knowing what your options are as far as traditional vs FHA can help you navigate these decisions and move forward with setting up the terms for a successful sale and move.
When considering the advantages of conventional loans vs. FHA loans, sellers need to consider all details such as qualifications, fees, and costs. A major benefit of a conventional loan is that the buyer often has higher credit ratings and more capital available for a down payment than with an FHA loan.
On the other hand, FHA loans may be attractive to some sellers since they only require a small downpayment and have traditionally lower closing costs. Researching both types of loans is important in order to gain an understanding of closing costs and other fees associated with each one. In the end, sellers should find the best mortgage from Sprint Funding that fits into their budget while meeting their needs when it comes time to sell.
Why Sellers prefer conventional loans over others?
FAQ
What is a conventional home loan?
A conventional home mortgage loan – one backed by private lenders instead of a government agency – is the most common type of financing used by home buyers. Conventional home loans offer several advantages and disadvantages that are important to understand.
How much can a seller contribute to a conventional loan?
On Conventional loans, the maximum amount that an interested party (such as the seller) can contribute to the buyers’ closing costs and prepaids varies depending on the loan to value ratio of the loan. The breakdown is as follows: for primary residences, the seller can contribute up to 6%, and for investment properties, the seller can contribute up to 90% (ranging from 76% to 90%).
Should you buy a home with a conventional loan?
A licensed real estate salesperson for Compass Real Estate in New York City, Adie Kriegstein, says that conventional loans can make the home-buying process easier and faster by giving buyers more freedom and less restriction. They can also give buyers a sense of financial stability and responsibility.
How does a conventional loan work?
People who borrow money agree to pay it back over a set amount of time, like 30 or 15 years, with interest that can be fixed or variable. “Because conventional loans are not supported by the government, lenders who offer them want to make sure you can bear the financial cost of paying back your loan, in addition to your other debts.
Do conventional loans require higher down payments?
“Conventional loans often require higher down payments. This can show the seller that the buyer is responsible with money, which can make them feel better about the sale, Kriegstein says.
What if I can’t get a conventional loan?
And conventional loans often come with more flexibility in terms of negotiating prices and contingencies,” says Davis. If you can’t qualify for a conventional loan, you can always pursue government financing in the form of an FHA loan, VA loan, or USDA loan, provided you meet the specific eligibility criteria for each loan program.
Why would a seller ask for a conventional loan?
Sellers often prefer conventional mortgages because they usually offer lower interest rates and the qualification requirements can be more lenient than those …
Why would someone want a conventional loan?
… a conventional loan because they can get a relatively good rate, make a small down payment, and enjoy higher loan limits than other programs typically offerFeb 21, 2025
Why would a seller not want FHA?
While some sellers may be hesitant to accept an FHA offer, it’s important to understand the facts before making a decision. Some reasons a seller might refuse an FHA loan include misconceptions about longer closing times, stricter property requirements, or the belief that FHA borrowers are riskier.
How much can a seller pay on a conventional loan?
Seller concession limits for conventional loans typically range from 3% to 6% of the home’s purchase price. However, the limit varies based on factors such as the buyer’s down payment and the loan-to-value ratio.