When it comes to buying a home, there are a lot of different factors to consider. Obtaining a mortgage to finance your home may seem like a complex, complicated, imposing task; however, with the right loan, and the right lender, it may actually be a smooth, easy process. There are some ins and outs to understand when it comes to choosing the best mortgage for you and your situation. Some mortgage options are government-backed; and they typically have specific requirements. If you are interested in a conventional loan, you should know about your different options.
Conforming Conventional Loan
A conforming conventional loan is a mortgage that is equal to or less than the loan limit established by the Federal Housing Finance Agency (FHFA). This limit (which is set annually) is the maximum amount of loan that Fannie Mae or Freddie Mac will purchase. As long as the dollar amount of your loan is equal to or less than the limit, and you qualify with your lender, you can purchase your home with a conforming conventional loan. Qualification of the loan is based on your credit history and ability to repay the loan over the term.
Non-Conforming Conventional Loan
If you are shopping for a home and find that your loan amount exceeds the conforming limit , you will need a non-conforming conventional loan. These are also known as jumbo loans. A jumbo loan is simply a mortgage that will be used to purchase a home that is more expensive than the FHFA’s conforming loan limit allows. In this scenario, there may be more stringent underwriting policies in terms of credit score, down payment, and cash reserves that will be required for approval.
Fixed-Rate Conventional Loans
A fixed-rate conventional loan will have an interest rate that will not change over the life of the loan. This is a good option if you plan to be in the home for a significant period of time, and if interest rates are low.
Adjustable-Rate Conventional Loans
An adjustable-rate mortgage (ARM) has an interest rate that may change over the life of your loan. Typically an ARM offers an introductory rate that is lower than comparable fixed-rate mortgages. However, after the introductory period ends, the interest rate is typically tied to an index that mirrors current interest rates in the market (for example LIBOR). If the LIBOR rate is higher than your initial rate when the introductory period ends, your rate will increase by a predetermined margin and thus so will you monthly payment. As your interest rate fluctuates, so will your monthly obligation. While interest rates can be unpredictable, an ARM may be advantageous if you only plan to be in your home for a short time. If you plan to sell in the near future, an ARM may be right for you.
When you begin the home shopping process, the experts at Standard Mortgage can help you select the best loan for you. Entrusting your home buying process to a knowledgeable, experienced loan officer is essential. The experts at Standard Mortgage (NMLS#: 44912) are here to help and have been for over 90 years.