Conventional Home Loans and Mortgages

Conventional home loans or conventional mortgages are referred to as conventional because they are not part of a specific government program. Because they are not part of a government program they are typically more difficult to get approved for. Although they are not part of a specific program rest assured they are regulated and there are many laws governing the home loans and the lenders. On the brighter side they typically will cost you less than for example an FHA loan.

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As with most things in life here is where things can get a little more complicated. Not everyone is desires the same type of home loan nor does everyone have the same needs or qualifications. Because of these factors conventional home loans come in a variety of shapes and sizes. Namely 2 types which are fixed rate loans and adjustable rate loans. Two other types are conforming and non conforming which we shall also address.

Fixed Rate Conventional Mortgage

Fixed rate conventional home loans are pretty much straight forward at least upon the surface. I am not a financial adviser nor an attorney. Both should be but rarely are consulted before entering into a mortgage. Fixed rate conventional mortgages are for a set number of years at a pre-set or non fluctuating interest rate. That interest rate is calculated by the day and at the end of each pay period you pay the amount of interest due on the principal plus accumulated interest. There are ways to save your self interest for example paying off the principal in advance but make sure you have a clear understanding of it. You may end up paying the back end of your loan if you overpay etc.

Adjustable Rate Conventional Mortgage

Adjustable rate conventional home loans are commonly referred to as an ARM which stands for adjustable rate mortgage. With these type conventional loans the interest rate can/ will change at predetermined intervals. The loan will usually be at a set rate initially for a pre determined amount of time. It is common to see that initial time last between 3 to 10 years. As an example, a 6/1 ARM with a term of 25 years will have the interest rate set for the first 6 years. Then every year that followed for the next 19 years the interest rate would most likely move up or down depending on the agreed upon terms. A great loan officer can help you determine if this type loan is good for you. It may seem complex but after discussing them for a couple of minutes trust me, you will know if they are right for you.

Conforming Conventional Home Loan

Conforming loans can only be made up to a pre-set amount. That amount is determined by the US Government. There are plenty of other rules that apply which are made by Fannie Mae and Freddy Mac which are companies (GSE's) that actually provide financial backing for these type loans. Since The government is basically guaranteeing the loan these types of loans are usually more affordable to the consumer.

• Most loans are this type
• Loan amount may be as high as $970,800 in expensive counties. Most counties will see this cap at $647,200.
• A conforming "Jumbo" home loan is over the $647,200 amount.
• Without placing 20% down you will most likely need mortgage insurance.

Non Conforming Conventional Home Loans

Non conforming conventional loans are higher risk. They work great and are wonderful for some people but they can also be somewhat dangerous. During the last great financial crisis it was these type of loans which got many borrowers in trouble financially. Here are some basic but interesting details.

• They can be loans of greater size.
• These loans may have higher rates and require less documentation from the borrower.
• These loans may allow you to pay just the interest on the loan or they may allow the loan balance to actually increase.
• A non-conforming "Jumbo" loan is usually 1-2 million dollars and the borrower must have good credit.
• Properties which are difficult to value and Doctors who are just starting out may possibly benefit from these loans.

Get Expert Advice about Conventional Home Loans

Rules, regulations and laws are constantly evolving. No one politician, attorney or mortgage loan officer/ broker knows it all. However have no fear. With a little patience and professional assistance you can rest assured that a true professional who cares about what they are doing can help point you in the right direction. The final decision is between you and the bank but a well educated, intelligent mortgage loan officer is definitely the preferred choice when shopping for the right loan. One great way to move forward with your loan investigation and to see what is right for you is to contact us. I know just the person to assist you with your conventional home loan.