Conventional Mortgages

Understanding Conventional Mortgage Loans: The Many Variations of a Popular Option

Conventional mortgage loans are a popular choice among homebuyers due to their flexibility and the wide array of options available. Although considered a typical loan, there are numerous versions of conventional mortgages to suit different financial situations and requirements. This article delves into the details of conventional loans and the various options that exist to help you make an informed decision when financing your home.

What is a Conventional Mortgage Loan?

A conventional mortgage loan is a type of home financing that is not backed or insured by the federal government. Instead, these loans are offered by private lenders, such as banks, credit unions, and mortgage companies. Borrowers must meet the lender's specific credit and income requirements to qualify for a conventional loan. While conventional loans are often perceived as a standard option, there are many versions that cater to the diverse needs of borrowers.

Key Features of Conventional Mortgage Loans:

  • Down payment options: Conventional loans generally require a down payment, which can range from 3% to 20% or more of the home's purchase price. A higher down payment can help reduce your monthly payment and typically helps you secure better loan terms.
  • Private mortgage insurance (PMI): If your down payment is less than 20%, you may be required to purchase PMI to protect the lender in case of default. PMI can be removed once you reach 20% equity in your home. As an alternative you can also choose to go with lender paid mortgage insurance (LPMI) if you have less than a 20% down payment which does not require an additional payment. We’re happy to discuss these options with you to determine which fits you best.
  • Credit requirements: Conventional loans usually require a higher credit score compared to government-backed loans. However, the minimum credit score requirements vary among lenders. Since we work with 70+ wholesale lenders we have many options when it comes to credit scores. As a reminder, we can also help you repair your credit for free and increase your score if you’re not quite high enough to qualify today. Contact us today to find out more about this option.
  • Interest rates: Conventional loan interest rates are based on various factors, such as credit score, loan-to-value ratio, and current market conditions. While rates can be competitive, borrowers with excellent credit and a sizable down payment often receive the lowest rates.

Variations of Conventional Mortgage Loans:

  • Fixed-Rate Mortgage (FRM): This loan type features a constant interest rate and consistent monthly payments for the life of the loan. Fixed-rate mortgages are available in various terms, such as 15, 20, or 30 years, allowing you to choose a repayment timeline that aligns with your financial goals.
  • Adjustable-Rate Mortgage (ARM): With an ARM, the interest rate can change after an initial fixed period, typically causing monthly payments to fluctuate. This loan type may be suitable for borrowers who plan to sell or refinance their home before the fixed period expires.
  • Conforming Loans: Conforming loans adhere to the loan limits set by Fannie Mae and Freddie Mac, two government-sponsored enterprises that buy mortgages from lenders. These limits vary based on location and change annually.
  • Non-Conforming Loans: These loans exceed the conforming loan limits and are also known as jumbo loans. Non-conforming loans often require higher down payments, stronger credit scores, and more stringent income requirements.
  • Portfolio Loans: Portfolio loans are held and serviced by the lender rather than being sold on the secondary mortgage market. These loans may offer more flexible underwriting guidelines and can be beneficial for borrowers with unique financial situations.

Conventional loans provide an array of options to cater to the diverse needs of borrowers. By understanding the various versions of conventional loans, you can make a more informed decision when selecting the best financing option for your home purchase. Let us help you make an informed decision and give you a personalized recommendation for your situation.

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