Conventional loans are mortgage loans that are not government backed loans, such as VA loans and FHA loans. Conventional loans are considered either conforming or non-conforming loans. Conventional loans, above the lending limits set by Fannie Mae and Freddie Mac, are called non-conforming or jumbo loans. Conversely, conventional loans within the limits (in most cases $417,000 or less for a single family home) are considered conforming loans.
Conventional loans most often have either fixed or adjustable interest rates. Typical fixed interest rate loans have a term of 15 or 30 years, with a shorter-term loan usually carrying a lower interest rate. Adjustable-rate mortgages (ARM) fluctuate in relation to the rate of a standard financial index, so monthly payments can go up or down accordingly.
Fixed Rate Mortgage
A fixed-rate conventional means that the interest rate stays the same for the entire loan period. The advantage of a fixed rate conventional loan is that the borrower always knows exactly how much the monthly payment will be.
Adjustable Rate Mortgage
In the case of a conventional adjustable rate mortgage (ARM), the initial interest rate and monthly payments are low, but may change during the course of the loan. Conventional loans mainly follow the Constant Maturity Treasury Index (CMT) or the London Interbank Offered Rate Index (LIBOR) in calculating the changes in interest rates. Conventional ARMS are offered with initial fixed rate periods of 3, 5, 7, and 10 years.
Conventional loans require the home buyer to invest at least 5% - 20% of the home sale amount in cash for the down payment and closing costs. A wide range of properties are eligible for conventional loans, including houses, condos, unit developments, and manufactured homes. Conventional loans may be taken to finance a primary residence, second home, or an investment property.
If you are thinking of buying or refinancing a home, contact First Liberty Mortgage to learn more about the options available with conventional loans. We will provide you with knowledgeable guidance and excellent service while working to help you achieve your home related financial goals.