WHAT IS AN CONVENTIONAL LOANS
Conventional loans, often preferred by homebuyers and refinancers, offer flexibility and competitive rates. Unlike government-insured loans, which are issued by private lenders and adhere to guidelines set by Fannie Mae and Freddie Mac, these government-sponsored enterprises purchase mortgages from lenders and make them available to investors.
At First Vision Real Estate & Financial Services, we recommend conventional loans to many of our clients due to their advantages, including the possibility of lower costs and fewer restrictions compared to government-backed options.
WHAT ARE DIFFERENT TYPES OF CONVENTIONAL LOANS
Fixed Rate Mortgages
- Overview Fixed Rate
Fixed-rate mortgages are ideal for buyers who plan to stay in their homes long. The interest rate remains the same throughout the life of the loan, making it easier to budget for the long term. This is best for buyers who want consistent payments and plan to stay in their homes for many years.
- Adjustable Rate Mortgages
ARMs offer lower initial interest rates than fixed-rate mortgages, but the rate can change over time based on market conditions. Typically, ARMs have an introductory period with a fixed rate (e.g., 5, 7, or 10 years) before adjusting annually. This is also best for buyers planning to sell or refinance before the adjustable period begins or those expecting interest rates to drop.
HOW TO QUALIFY FOR A CONVENTIONAL LOAN
To qualify for a conventional loan, borrowers typically need:
- Credit Score: A minimum credit score of around 620, though higher scores are often required for better terms.
- Down Payment: Conventional loans usually require a minimum down payment of 3%, though putting down 20% can help you avoid private mortgage insurance (PMI).
- Debt-to-Income Ratio (DTI): Lenders generally prefer a DTI of 43% or lower, although some may allow up to 50%, depending on other factors.
Conforming vs. Non-Conforming Loans
Most conventional loans are considered “conforming loans,” meaning they adhere to the loan limits set by the Federal Housing Finance Agency (FHFA). For 2024, the baseline conforming loan limit is $766,550, though this amount can be higher in areas with more expensive real estate markets, such as certain counties in California.
Loans that exceed these limits are known as “jumbo loans” or “non-conforming loans.” Jumbo loans are used for more expensive properties but have stricter qualifying requirements, such as higher credit scores and larger down payments.
Why Choose a Conventional Loan?
Conventional loans are a great option if you have a strong credit score, a stable income, and the ability to make a down payment of at least 3%. They often offer more flexibility in terms and conditions compared to government-backed loans, and for those who can put down 20%, they allow for avoiding PMI, which can save money over the life of the loan.
At First Vision Real Estate & Financial Services, we are committed to helping you navigate the mortgage process and find the best loan option for your needs. Whether you’re buying your first home, upgrading to a larger space, or refinancing your current mortgage, our team guides you every step of the way.
Conventional loans provide a reliable and versatile path to homeownership, especially for those with good credit and the ability to make a substantial down payment. With various options, including fixed-rate and adjustable-rate mortgages, conventional loans can be tailored to fit your financial situation and home-buying goals.
Contact First Vision Real Estate & Financial Services for personalized advice and to explore your mortgage options. Let us help you secure financing that fits your needs and budget.