If you or your property don’t qualify for a government-insured loan, like an FHA or VA loan, Patty Newby will work with you to find the conventional loan that will help you finance your home. Conventional loans can offer several financing benefits that government-insured loans can’t provide. With Thrive Mortgage, LLC, you will have an experienced professional by your side to determine which financing option will be best suited for your unique situation.
Conventional Mortgage Loans vs. Government-Insured Loans
With any type of loan comes a certain amount of risk for the financial institution acting as a lender. Often, the government will mitigate this risk by offering programs that will cover potential losses. When certain conditions are met, this can benefit both the lender and the borrower. On the other hand, when the government isn’t covering potential losses, a private company must provide this insurance. These loans can be more costly and more difficult to attain for individuals with low credit or income; however, they offer more freedom than government-backed loans can.
Types of Conventional Loans
- Conforming Loans: These conventional loans use the guidelines set by the two major government-sponsored enterprises, Fannie Mae and Freddie Mac. Conforming conventional loans are subject to a standard maximum of $417,000 for a single-family home. (This standard can change based upon the average price of living in your area.) Other standard guidelines for conventional loans include requirements for borrower credit scores and borrower annual income and a minimum down payment, usually between 5 and 20 percent.
- Non-conforming Loans: Loans that don’t conform to the guidelines set by the government-sponsored enterprises are known as non-conforming loans. For example, loans that exceed the maximum loan amount set by these guidelines are known as jumbo loans. Whether a loan is conforming or non-conforming, if it’s not government-insured, it’s considered a conventional loan.
Fixed Rate vs. ARM Conventional Loans
The interest that you pay on a conventional loan depends on the type. There are two ways that interest is managed for conventional loans, with a fixed rate or an adjustable rate.
- Fixed Rate Mortgage: With a fixed-rate mortgage, the interest rate is established when you take out the loan and is never subject to change. Depending on the economy, this set rate may be high, low, or somewhere between. During periods when interest rates are low, a fixed-rate mortgage may be the best choice. Fixed-rate loans keep the same interest during the life of the loan, despite any changes in the economic climate. This means you could be locked into a low rate early that will save you thousands of dollars, or you could be locked into a rate that will prove high compared to changing industry standards.
- Adjustable-Rate Mortgage (ARMs): Unlike a fixed-rate mortgage, interest rates on an adjustable-rate mortgage will fluctuate with the changing market. This means that your interest rate will consistently be compared to a broader measure of current interest rates, called an index. When this index goes up or down, so will your mortgage payments. This insures that your interest rate is always conforming to current industry standards, which can be an advantage if interest rates drop; however, these types of loans are unpredictable and your monthly payments may increase dramatically. Many ARMs come with limits that set maximums and minimums for the adjustments in your interest rates.
Advantages of Conventional Loans
- Flexible Terms: The major benefit of conventional loans is that they aren’t subject to the stringent stipulations to which government-backed loans must conform. In many cases, this makes you exempt from payment penalties and other costs that borrowers of FHA loans would be responsible for covering.
- Competitive Rates: Because the government doesn’t insure conventional loans, this type of loan constitutes more risk on the part of the lender. This means that this type of loan is generally more difficult to qualify for. Qualifying for a conventional loan typically means that you have a higher credit score, which often makes you eligible for lower rates than FHA loans would be able to offer. This also makes it easier to refinance your mortgage to an even lower rate or getting a cash out refinance on your mortgage.
Why Choose Conventional Loans with Patty Newby
At Thrive Mortgage, LLC, Patty Newby has the local experience and industry insight to develop the best financing plan for you. We start by examining your entire financial profile, from your assets, to your net worth, to your annual income. From there, we will work with you to determine the best mortgage solution for your unique situation.