Conventional Mortgages: Flexibility for Homeownership

A conventional mortgage is a popular option for many homebuyers. Offered by private lenders, these loans are not directly insured by the government but may be purchased by Fannie Mae and Freddie Mac, which are government-sponsored enterprises (GSEs) that set standards for conforming loans.

Here’s what you need to know about conventional mortgages:

• Down Payment: Unlike some government-backed loans, conventional mortgages typically require a down payment of at least 3%. However, a 20% down payment will help you avoid private mortgage insurance (PMI), which protects the lender in case of default.

• Credit Score: Conventional loans have stricter credit score requirements than government-backed loans. Generally, a score of at least 620 is needed to qualify, with a higher score (around 740 or above) resulting in a more favorable interest rate.

• Interest Rates: Conventional mortgages typically offer competitive interest rates, which can be lower than government-backed loans depending on your creditworthiness. They come in two main varieties:

  • Fixed-Rate Mortgage: This option offers a fixed interest rate for the entire loan term, providing stability in your monthly payments.

  • Adjustable-Rate Mortgage (ARM): With an ARM, the interest rate can adjust periodically (often every 6 months, annually, or every five years) based on a financial index. This can lead to lower initial rates but carries the risk of adjustments that could increase your monthly payment.

• Loan Limits: Conforming conventional loans adhere to limits set by the Federal Housing Finance Agency (FHFA). These limits vary depending on your location, with higher limits in high-cost areas. We have a wide variety of jumbo loan options for higher loan amounts.

Benefits of a Conventional Mortgage:

• Competitive Rates: Potential for lower interest rates and mortgage insurance compared to government-backed loans with good credit.

• Flexibility: Conventional loans offer various fixed-rate and ARM options to suit your financial goals. The home loans can also be used for vacation homes and 1-4 unit investment properties.

• Lower Down Payment Option: Compared to a 20% down payment for eliminating PMI, the minimum 3% allows you to enter homeownership sooner.

Is a Conventional Mortgage Right for You?

Consider a conventional mortgage if you have a good credit score, have saved for a down payment, and prefer the stability of a fixed-rate loan or the potential benefits of an ARM.

We Can Help!

My team and I can guide you through the conventional loan process, assess your eligibility, and help you choose the right loan option for your situation. Contact me today to discuss your homeownership goals!

Additional Resources:

• Consumer Financial Protection Bureau
• Fannie Mae
• Freddie Mac