Conventional Loans

A Conventional loan is a mortgage that is not guaranteed or insured by any government agency, including the Federal Housing Administration (FHA), the Farmers Home Administration (FmHA), and the Department of Veterans Affairs (VA). It is typically fixed in its terms and rate. 

 

They include:

  • Conforming Loans

  • Non-Conforming Loans

  • Jumbo Loans

  • Construction/Permanent Loans

 

About half of all conventional loans are called "Conforming" Loans because they conform to guidelines established by Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs).  These are typically Fixed and Adjustable Rate Loans.

Loans that do not conform to GSE guidelines are referred to as "Non-Conforming" Loans. 

Jumbo Loans are Non-Conforming loans that are larger than loan limits (currently $417,000 for majority of the Nation) set by the GSEs. 

Construction/Permanent Loans start with an Interim Loan based on the amount of draws for each phase of the construction or major renovation.  When the construction phase has been completed, the loan is modified into a Permanent loan.  All Non-Conforming Loans are also Conventional Loans.

  

Fixed-Rate Loan:
This means that your interest rate and your total monthly payment of principal and interest will stay the same for the entire term of the loan. Monthly payments will only adjust if your homeowners' insurance or property taxes are paid with your mortgage each month, and a change is made to either of them. 

 

Adjustable-Rate Loan:

The interest rate on an ARM is usually lower than a Fixed Rate and results in a lower monthly payment.  The lower interest rate and payment are fixed for an introductory period of 3, 5, 7 or 10 years then adjusts according to the percentages and terms implemented at the origination of the loan. This is also tied into the current Index at the time of the adjustment.  If you do not plan to keep your home for more than a few years an adjustable interest rate might be suitable for you, and you can plan according to the fixed rate period ranging from 3 to 10 years.