ABOUT CONVENTIONAL LOANS
A conventional mortgage refers to any loan that is not insured or guaranteed by the federal government, as opposed to government-insured loans including Federal Housing Administration (FHA), U.S. Department of Veteran Affairs (VA) and U.S. Department of Agriculture (USDA). If you are planning to borrow $424,100 or less for a single-family home, you should be looking into a conforming conventional loan.
Conventional mortgages typically have a slightly higher down payment than government loans; however, this loan option normally provides more flexibility with fewer restrictions. Conventional loans generally have the most rapid qualifying process, as the guidelines are clear and concise. However, every conventional mortgage lender will review and verify a borrower’s credit, income and assets, along with an appraisal of the property.
Conventional Loan Eligibility
Conventional conforming loans are not made by a government entity, but instead, follow the guidelines set forth by Fannie Mae and Freddie Mac. These established guidelines include:
- A minimum credit score
- Certain income requirements
- A minimum down payment (generally between 3% and 20%)
If you have good credit and stable income, a conventional loan might be the right option for you since it offers:
- Lower interest rates for borrowers with good credit
- Flexible mortgage insurance options
- Fewer penalties and fees
- Flexible loan terms
MORE ABOUT CONVENTIONAL LOANS
To learn more about conventional mortgages and see if this is the best option for you, please see the frequently asked questions below.
- Adjustable-Rate Mortgage
- Fixed-Rate Mortgage
- Jumbo Mortgage
An adjustable-rate mortgage (ARM) is a loan term option with interest rates that can change periodically after the initial fixed-rate period. After this introductory period, monthly payments are susceptible to increases or decreases based on market fluctuations, which can also affect the monthly payment. An ARM could be the right choice for you if you plan on staying in your home for just a few years, you’re expecting a future pay increase, or the current interest rate on a fixed-rate mortgage is too high.
Fixed-rate mortgages protect you against rising rates since the interest rate remains the same for the entire term of the loan. Plus, you have the option of selecting a 10, 15, 20, 25 or 30-year term. The main difference is the lower term options have higher monthly payments, which also means you are building home equity faster. Keep in mind you can use equity as a down payment for your next home or a future cash-out refinance. If you plan on staying in your home for a longer time frame, a fixed-rate mortgage could be the right solution for you.
A jumbo loan, or non-conforming mortgage, allows you to purchase more expensive homes with a loan amount above the conforming limit set by the Federal Housing Finance Agency. In most areas of the country, the conventional conforming loan limit is $417,000; however, the limit is $625,500 in higher cost areas. If you have a low debt-to-income (DTI) ratio and a higher credit score, but you don’t have enough funds to bring the loan amount under the conforming limit, a jumbo loan might be the right option for you.
The loan officers at Fairway Independent Mortgage Corporation in Grand Junction have the answers to any other questions you may have about moving forward with a convention loan. Contact us today to get started!