What is a Conventional Loan?

A conventional loan is basically any kind of lender agreement that's not backed in full by the Veterans Administration or protected by the FHA (the Federal Housing Administration). All told, there are several broad categories of conventional loans. Fixed rate mortgages are simpler in some cases. A home borrower “locks in” at an interest rate, and he or she pays down the principal and interest on the mortgage every month at that rate.

Nonconforming loans -- instruments which don't meet Fannie Mae or Freddie Mac qualifications -- are also considered conventional. Another category of loans, jumbo loans, falls outside of Fannie Mae eligibility but is also considered conventional. A jumbo loan is a loan that's too large to be eligible to be traded by the two main loan purchasers.

 Conventional - (10, 15, 20, 25, 30 yr fixed, and ARMs)

When you decide to buy a home, you should first contact us we have the experience, and a complete range of mortgage products.

NOTE: If you are planning on seeing Realtors and potentially making an offer on a home, it is essential that you get "pre-approved". This is very different from "pre-qualify".

• Pre-Qualify is usually when you simply talk with a lender on the phone. Give them basic information, etc. Then they say something to the effect of "sounds like you should be able to buy a house for $X amount" THIS IS NOT AN APPROVAL. Do NOT make an offer to buy a home based on this information.
• Pre-Approval is when you go through the entire application process. An underwriter has APPROVED your loan. The only thing missing is an actual property address.

Need a Realtor? We can help you with that too! As a full service lender, we offer Real Estate, Title, and Mortgage services all in one location!

Thirty-Year Fixed Rate Mortgage
The traditional 30-year fixed-rate mortgage has a constant interest rate and monthly payments that never change. This may be a good choice if you plan to stay in your home for seven years or longer. If you plan to move within seven years, then adjustable-rate loans are usually cheaper. As a rule of thumb, it may be harder to qualify for fixed-rate loans than for adjustable rate loans. When interest rates are low, fixed-rate loans are generally not that much more expensive than adjustable-rate mortgages and may be a better deal in the long run, because you can lock in the rate for the life of your loan.

Fifteen-Year Fixed Rate Mortgage
This loan is fully amortized over a 15-year period and features constant monthly payments. It offers all the advantages of the 30-year loan, plus a lower interest rate—and you'll own your home twice as fast. The disadvantage is that, with a 15-year loan, you commit to a higher monthly payment. Many borrowers opt for a 30-year fixed-rate loan and voluntarily make larger payments that will pay off their loan in 15 years. This approach is often safer than committing to a higher monthly payment, since the difference in interest rates isn't that great.

Hybrid ARM (3/1 ARM, 5/1 ARM, 7/1 ARM)
These increasingly popular ARMS—also called 3/1, 5/1 or 7/1—can offer the best of both worlds: lower interest rates (like ARMs) and a fixed payment for a longer period of time than most adjustable rate loans. For example, a "5/1 loan" has a fixed monthly payment and interest for the first five years and then turns into a traditional adjustable-rate loan, based on then-current rates for the remaining 25 years. It's a good choice for people who expect to move (or refinance) before or shortly after the adjustment occurs.

Adjustable Rate Mortgages (ARM)
When it comes to ARMs there's a basic rule to remember...the longer you ask the lender to charge you a specific rate, the more expensive the loan.

2/1 Buy Down Mortgage
The 2/1 Buy-Down Mortgage allows the borrower to qualify at below market rates so they can borrow more. The initial starting interest rate increases by 1% at the end of the first year and adjusts again by another 1% at the end of the second year. It then remains at a fixed interest rate for the remainder of the loan term. Borrowers often refinance at the end of the second year to obtain the best long-term rates. However, keeping the loan in place even for three full years or more will keep their average interest rate in line with the original market conditions.

Annual ARM
This loan has a rate that is recalculated once a year.

Monthly ARM
With this loan, the interest rate is recalculated every month. Compared to other options, the rate is usually lower on this ARM because the lender is only committing to a rate for a month at a time, so his vulnerability is significantly reduced.

Current Fannie Mae guidelines for conventional homes put the maximum price for a conventional, conforming loan at $417,000 for a single-family arrangement. Temporarily thru end of 2008 the conforming limit has been increased to $729,750 as agreed to by the Government Stimulus Act of 2008 this amount is planned to scale back to $650,000 for the immediate future.  If you live outside of the 48 contiguous United States (in Guam, Hawaii, or Alaska), you may qualify for a larger loan limit.

What determines the rate for your conforming loan? First and foremost, the kind of loan you want will impact pricing both in the short-term and in the long-term. Lenders will also look at how much funds you have to close, your credit history, and your employment history. Finally, the financial details of your final arrangement will be intimately tied up with the location of your property and the kind of home you purchase or build.