What Are Conventional Loans?
Conventional loans are mortgages that aren’t backed by a government agency such as the FHA, VA, or. Conventional loans usually have fixed rates and terms.
Conventional loans are the most common type of mortgage. They are an option when:
- You have good or excellent credit
- You have at least 3% of your own funds available for down payment
- You have a “non-purchasing spouse” in community property states
Conventional loans include:
- Variable & fixed rate options – variable rate loan payments adjust to market interest rates, whereas fixed rate loans lock in an interest rate and make planning easier because the principal and interest of your loan will not change.
- Conforming loans – these conform to guidelines set by Fannie Mae and Freddie Mac, two government-sponsored agencies that purchase loans for resale to investors.
- Jumbo loans – larger sized loans for more expensive properties. Read about jumbo loans here.
- Portfolio loans – conventional loans owned by mortgage lenders, as opposed to those sold to investors. They often include unique features that set the apart from other mortgages.
Conventional Loans vs FHA and VA Loans
As stated above, conventional loans are distinct from government-backed loans, such as those insured by the FHA and VA. Government-backed loans are less risky to investors and are therefore generally less costly to the borrower. Read more about FHA and VA loans here.
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Many Conventional Loans to Fit Your Needs
There is a wide range of Conventional loans from which to choose, depending on your unique situation and goals:
- Fifteen- and thirty-year fixed rate mortgage
- Adjustable rate mortgages (ARM)
- Hybrid ARM (3/1 ARM, 5/1 ARM, 7/1 ARM)
- Annual ARM