When looking for a home loan, considering a conventional loan is a great place to start. With low rates and rising home values, equity is returning to the average homeowner, making a conventional loan a solid choice to finance your new home.
What Is a Conventional Loan?
A conventional mortgage refers to a loan that is not insured or guaranteed by the federal government. A conventional, or conforming, mortgage adheres to the guidelines set by Fannie Mae and Freddie Mac, and may have either a fixed or adjustable rate. The maximum limit for a conforming loan depends on the county and state you live in and can be found here: Fannie Mae Loan Limits.
Fixed-rate mortgages have a set interest rate for the entire length of the mortgage term, which can be between 10 and 30 years. The fixed rate mortgage is the most common type of loan program. Because the interest rate remains constant for the life of the loan, your monthly payments for interest and principal never change. Property taxes and homeowners insurance may increase, but generally your monthly payments will be very stable.
Adjustable-Rate Mortgage (ARM)
An ARM has a term of 30 years, which generally begins with an interest rate lower than a comparable fixed rate mortgage, and could allow you to buy a more expensive home.
However, the interest rate changes at specified intervals (for example, every year) depending on changing market conditions; if interest rates go up, your monthly mortgage payment will go up, too. In the event that rates go down, your mortgage payment will drop also.
There are also mortgages that combine aspects of fixed and adjustable rate mortgages — starting at a low fixed rate for seven to ten years, for example — then adjust to market conditions.
What Is a Jumbo Loan?
These loans are larger than the limits set by Fannie Mae and Freddie Mac are called jumbo loans. Because jumbo loans are not funded by a Government-Sponsored Enterprise (GSE), they usually carry a higher interest rate and some additional underwriting requirements.
Let’s find the right loan for you. Contact a Home Loan Officer.