While conventional home loans typically come with a higher down payment than government backed loans, they offer more flexibility and less restrictions. Conventional loans may be the ideal solution for you if you have solid credit and a steady income.
Borrowers with good credit scores could benefit from lower interest rates.
Conventional loans may afford the borrower lesser fees and penalties.
Though conventional loans offer buyers more flexibility, they’re also riskier because they’re not insured by the federal government.
Conventional home loans provide more flexible mortage insurance options which protect the lender against loss in the case of the mortgager’s default.
An adjustable-rate mortgage (ARM) is a loan term option with interest rates that can change periodically after the initial fixed-rate period. After this introductory period, monthly payments are susceptible to increases or decreases based on market fluctuations, which can also affect the monthly payment. An ARM could be the right choice for you if you plan on staying in your home for just a few years, you’re expecting a future pay increase, or the current interest rate on a fixed-rate mortgage is too high.
Fixed-rate mortgages protect you against rising rates since the interest rate remains the same for the entire term of the loan. Plus, you have the option of selecting a 10, 15, 20, 25 or 30-year term. The main difference is the lower term options have higher monthly payments, which also means you are building home equity faster. Keep in mind you can use equity as a down payment for your next home or a future cash-out refinance. If you plan on staying in your home for a longer time frame, a fixed-rate mortgage could be the right solution for you.
A jumbo loan, or non-conforming mortgage, allows you to purchase more expensive homes with a loan amount above the conforming limit set by the Federal Housing Finance Agency. In most areas of the country, the conventional conforming loan limit is $484,350; however, the limit is $726,525 in higher cost areas. If you have a low debt-to-income (DTI) ratio and a higher credit score, but you don’t have enough funds to bring the loan amount under the conforming limit, a jumbo loan might be the right option for you.