A World of Possibility with Conventional Loans
If you’re looking for a mortgage with a wide selection of terms with competitive interest rates, conventional loans may be your answer. These loans are what many people think of when it comes to a traditional home loan. Unlike nonconventional loans, they are not part of a government-sponsored program, and area instead fully funded and insured by private lenders and insurers. Here, we’ll discuss basic information about conventional loans. Whether you’ve just started thinking about purchasing a home or are ready to get preapproval and start looking, Brian Masterson – Bay Capital Mortgage can help. Brian is a skilled mortgage professional with the local expertise in Annapolis, MD, you want during this important life decision. Contact our team to get started.
Conforming and Nonconforming Loans
There are two main types of conventional loans: conforming and nonconforming. Conforming loans conform to loan limits set by mortgage giants and government-sponsored entities (GSEs) Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac are not government departments, but rather companies supported by the government. These GSEs purchase mortgages from private lenders, taking them off their books, and either hold them in portfolios or package them into mortgage-backed securities. By purchasing conforming loans from lenders, it allows the lenders to fund more mortgages.
Loans that exceed Fannie Mae and Freddie Mac underwriting limits are known as nonconforming or “jumbo” loans. Jumbo loans are still conventional loans, because they are not tied to a government program, but they do not conform to GSE standards. In Anne Arundel County, any loan more than $517,500 is considered jumbo.
Fixed or Adjustable Rates
Conventional loans may have fixed-rate or adjustable rates (ARM). Fixed-rate interest is consistent for the life of the loan, which means a client’s mortgage payment will remain the same for the life of the loan. Terms for fixed-rate mortgage typically range from 10-30 years.
ARMs change on a schedule after a fixed period expires. Common types of ARM include:
- Traditional ARM: Interest rates change on a regular schedule, usually biannually or annually.
- Hybrid ARM: Interest rates remain the same for a fixed period, then increase annually thereafter. Examples include a 5/1 ARM, in which interest is the same for 5 years, then increases annually thereafter, or 7/1 ARM, in which interest is the same for 7 years, then increases annually thereafter.
Basic Conventional Loan Requirements
Ultimately, each lender decides who is and is not approved for a conventional loan. Lenders should be prepared to supply at least two years of W-2s, tax statements, bank statements and proof of cash reserves, profit-and-loss statements (for business owners) and submit to a credit report.
Clients should have good or better credit (at least 620 or higher) and a low debt-to-income ratio (DTI), although the specific requirement varies by lender.
For most conventional loans, at least a 20% down payment is expected, especially for conventional loans. In some cases, we can secure loans without a 20% down payment, but borrowers should be advised that they will need to pay private mortgage insurance (PMI) until at least 20% equity is achieved.
We’re Ready to Help
If conforming or jumbo conventional loans sound like the right fit for you and your family, contact Brian Masterson – Bay Capital Mortgage in Annapolis today. Brian will do everything he can to get you approved for a mortgage rate with the rate and terms you want so you can achieve the dream of owning a home.