Conventional Loans: Competitive Rates and Flexible Terms
Whether you’re financing your first home or your 10th, it’s important to understand the basics of different types of mortgages. Conventional loans are what many people think about when a standard mortgage comes to mind. These loans are funded through private lenders and not secured by the federal government (unlike nonconventional loans, which are insured through federal programs). Conventional loans come in all shapes and sizes, with adjustable or fixed interest rates and different term lengths. They have more stringent eligibility requirements but great benefits to consider. Aaron McDaniel – Cherry Creek Mortgage is a local mortgage specialist serving Keller, Denton County, Frisco and Irving, Texas. He and his team have the local connections and personalized attention you want, backed by national lending power with competitive rates. Contact us when you’re ready to learn more about conventional loans and get a free quote.
What Makes Conventional Loans Unique?
There are two basic divisions of mortgages: conventional and nonconventional. Nonconventional loans like FHA loans, VA loans, and USDA loans are insured and semi-regulated through their respective departments to help people get home financing who otherwise might not qualify for conventional loans. They are funded by private lenders, but those lenders have security in that the government will repay loans that go into default. They have low down payments and easy credit qualifying, but often have higher interest rates and cost more over time than conventional loans.
Conventional mortgages have more competitive qualifying requirements, including lower debt-to-income (DTI) ratios, higher credit score requirements, and higher down payments. You can choose the term length that works best for you with a conventional loan, typically from 10-30 years. You can choose an adjustable rate loan, in which the interest rate will change during the life of the loan, or a fixed-rate loan, in which the interest rate and monthly payment stay the same.
There are many benefits to consider when it comes to conventional home loans:
- They have no lending limits from any government entity (although they are divided into conforming and nonconforming loans, which we’ll describe shortly).
- They have lower interest rates for long-term savings.
- No private mortgage insurance is required after a borrower reaches 20% equity on the loan.
- They do not have income limits as many nonconventional loans do.
Conforming and Nonconforming Conventional Loans
There is a misconception that conforming and conventional are interchangeable terms. Conforming loans are actually one of two types of conventional loans. Conforming loans are purchased in bulk from lenders by government-sponsored entities (GSEs) Fannie Mae and Freddie Mac. While Fannie Mae and Freddie Mac are not departments of the federal government like the FHA, VA, and USDA, they will only purchase mortgages up to a certain value. In Collin, Denton, and Dallas Counties, those limits are:
- $453,100 for a one-unit property
- $580,150 for a two-unit property
- $701,250 for a three-unit property
- $871,450 for a four-unit property
If you want to purchase a property that exceeds these limits, you will need a nonconforming “jumbo” loan. Jumbo loans stay on lenders books, which means they incur a higher level of risk. To secure a jumbo loan, you will need a great credit score, even lower DTI and need to put down a higher down payment (usually 30%). Jumbo loans typically have higher interest rates, but they can be refinanced after some time has passed to save.
Explore the Possibilities of Conventional Loans
When you’re ready to learn more about conventional loans and get a no-obligation quote, Aaron McDaniel – Cherry Creek Mortgage is here for you. We are closely connected in the community and can help you through the entire mortgage process, from quote to close. We work with clients in Keller, Denton County, Frisco and Irving, so contact us today.