6 Conventional Loan Types That All Texas Home Buyers Need To Know
Conventional loans are a common mortgage option, that even works for first-time home buyers. Yet you may not know that there are different types of conventional loans.
Here is more information about the primary conventional mortgage product types, and how they differ and what they might mean to you.
1. Conforming Conventional Loans
If conventional loans are under the maximum loan amounts that the Federal Housing Finance Agency has set and it matches the other loan standards that the Fannie Mae or Freddie Mac have set, it is known as a “conforming loan”. Because Freddie and Fannie are both government-sponsored enterprises, these are also known as “GSE loans”.
2. Nonconforming Conventional Loans
When conventional loans exceed the FHFA loan limit or it has used underwriting standards which differ from the ones set by Freddie Mac and Fannie Mae, it is known as a “nonconforming conventional” loan. The Jumbo loan is one of the common non-conforming conventional loans. You might require a Jumbo loan if you need finance for something that exceeds $484,350, in most of the counties in the U.S.
3. Fixed-Rate Conventional Loans
Whether they are nonconforming or conforming, every mortgage comes with interest that you have to pay back. With fixed-rate conventional loans, your interest rate will remain the same for the duration of the mortgage. Most buyers prefer the 30-year fixed-rate conventional loan since it translates into affordable monthly payments. There are also shorter terms made available.
4. Adjustable-Rate Conventional Loans
This is an alternative to fixed-rate mortgage as these loans offer an ARM or adjustable-rate mortgage. The conventional loan linked with an adjustable-rate is also called hybrid ARM, which has a rate that might go down or up over time. ARM rates typically adjust annually, from the initial fixed-rate period which is usually 3, 5, 7, or 10 years.
5. Low-Down-Payment Conventional Loans
There was once a time where obtaining conventional loans would require a 20% down payment. Since borrowers that match these requirements only need 80% of the value of the home, this is also known as the “80/20 conventional loan”. However, the requirements for down payments have become a lot more flexible.
- 3% Down Payment: Home Possible and HomeReady are two conventional-mortgage options that require low down-payments, sometimes as little as 3%. This is also known as a “3-down conventional loan”. Borrowers that qualify for the 3% down payment, have to obtain finance for the remaining 97%.
- 5% Down Payment: The borrowers that have a low credit score may have to put down a 5% down-payment or more to obtain one of the conventional loans. This means that they would have to finance 95% of the value of the home.
- Zero Down Payment: If you wanted to know if you can get 100% conventional-loan financing, the answer would be yes. However, these are not always easy to find. Certain lenders which are usually credit unions provide in-house, non-conforming conventional programs for mortgages that offer 100% financing, yet specific qualification requirements usually apply.
6. Conventional Renovation Loans
It can be difficult to find the ideal home within your budget. Investing in a fixer-upper is one of the ways to own a home when move-in ready inventories are low or the price of properties is too high.