Conventional Loan Options
People come from all walks of life seeking home loans, and because no two people have the same financial situation, there are several conventional loan types.
Conforming/non-conforming conventional loans
The Federal Housing Finance Agency has set maximum loan amounts for conventional mortgages, and Fannie Mae and Freddie Mac have set additional standards. If a conventional loan is less than the maximum and meets the financing limits, it’s known as a conforming loan. Non-conforming loans are ones that exceed the loan limit. They’re also called “jumbo loans.” These loan types usually carry higher interest rates because of the higher risk that they carry. They require a minimum conventional loan down payment of 20% and qualification is more of a challenge.
Fixed-/adjustable-rate conventional loans
As you know by now, any loan you’re after will require you to pay interest in exchange for borrowing the funds. However, not all loans stay at the same rate over time; this is the difference between a fixed rate and adjustable rate. The interest rate of adjustable-rate loans may fluctuate over time with the market. These are good for short-term homeowners or people who expect to refinance after their income increases. Fixed-rate mortgages have locked-in interest rates that will remain the same over the life of the loan. They’re ideal for borrowers who want the peace of mind knowing their payment will be consistent month over month.
Low-down-payment conventional loans
Conventional loans are much more flexible than they used to be; they no longer require you to pay 20% down. Low-down-payment conventional loans allow you to pay 5% or even as little as 3% down if you’re willing to take on a higher interest rate. Note: private mortgage insurance is required when making a down payment of less than 20%.