Conventional Loans
Conventional loans are the more popular and traditional options for borrowers. According to the U.S. Census Bureau, nearly 3/4s of all new home sales in 2018 were purchased with conventional loans. These loans can sometimes be called “conforming” loans because they “conform” to the Fannie Mae and Freddie Mac guidelines.
Buyers are typically more interested in conventional loans because, A. They are the most ubiquitous, B. They typically have the best loan terms: lowest interest rates, lower monthly payments, etc.
Why doesn’t everyone just go for the conventional loan? Not everyone can qualify.
Conventional loan programs are ideal if you:
- Have good to excellent credit
- Enough
cash for down payment
Typically between 3.5% – 20% - Plan to purchase a primary, secondary or investment property.
People most commonly seek one of the following loan programs:
Fixed-Rate Mortgage
A fixed-rate mortgage has a set interest rate and consistent monthly payments, making it ideal for borrowers who plan to be in the same home for a while. It is available in 10-, 15-, 20-, and 30- year term, waives PMI with a 20% down payment, and can be obtained with as little as 3% down.
Adjustable Rate Mortgage
People also choose the Adjustable Rate Mortgage, most popular being the 5/1 ARM, 7/1 ARM, and the 10/1 ARM. The first number signifies a set period that the loan is repaid at a fixed rate. After that time expires, the interest rate will adjust according to the second number.
For example: a 10/1 ARM will maintain a fixed interest rate for 10 years, and then adjust every 1 year until the loan is repaid.
There are plenty of advantages to the ARM:
- a lower fixed interest rate than the fixed-rate mortgage offers
- lower initial monthly payments
- limits on how much your payments can increase
- down payments exceeding 20% to negate the PMI
- ability to start with as little as 3% down
Give us a call, or shoot us an email today to figure out what program is right for you!
