Conventional Home Loans
About Conventional Home Mortgages
In basic terms, a conventional loan is any mortgage that is not insured by the federal government. In other words, it is not guaranteed under the Veterans Administration (VA), the Federal Housing Administration (FHA), or the Rural Housing Service of the U.S. Department of Agriculture. However, these mortgages can still follow the guidelines set by government-sponsored industries such as Fannie Mae or Freddie Mac.
These types of loans usually work best for borrowers who have an excellent credit rating and history, and can afford a substantial down payment. Conventional loans can be used for primary or secondary residences, or even on an investment property. As long as there is a market for the property, these types of mortgages are available in all areas of the country. Of course, not every loan is the same.
Types of Conventional Loans
There are different types of conventional mortgages available, and each offers different benefits depending on your personal situation. Some of the most common include:
- Fixed Rate Mortgage – Your interest rate stays the same for the entire loan period.
- Adjustable Rate Mortgage – The interest rate has the potential to be lower, but it can change during the lifetime of the loan.
- Jumbo Mortgage – A loan in an amount that is above the normal conforming loan limits.
- Balloon Loan – A mortgage that does not fully amortize over its term. This means that a final balloon payment is due at the end of the term.
Conventional Loan Requirements
Many factors can play into a person’s qualifications for a conventional mortgage loan. Income and monthly expenses, standard debt-to-income ratios, credit history, and more can all influence your eligibility for this type of loan. Most of these loans will also require the homebuyer to pay at least 5% - 20% of the sales price as a down payment. These requirements may cause some difficulties for some, so it is important to understand the differences between conventional, VA, and FHA loans before you make your decision.