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). However, they typically meet the lending guidelines that have been set by Fannie Mae or Freddie Mac
Conventional mortgages (whether conforming or not) typically have a slightly higher down payment than government loans; however, this loan option normally provides more flexibility with fewer restrictions.
They typically require the borrower to have good credit, a stable monthly income, and a down payment of 5-20%.
Conventional Loan Programs
Adjustable-Rate Mortgage (after an initial fixed-rate period, your interest rate can change once per year)
After the introductory fixed-rate period, monthly payments are susceptible to increases or decreases based on market fluctuations, which can also affect the monthly payment. This could be the right choice for you if you plan on staying in your home on a more short-term basis (such as just a few years), expecting a future pay increase, or the current interest rate on a fixed-rate mortgage is too high.
Fixed-Rate Mortgage (rate and payment don’t change)
With fixed-rate loans, 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.
Jumbo Mortgage
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 $510,400; however, the limit is $765,600 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.
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