Conventional loans are mortgages not guaranteed by any government agency such as the Federal Housing Administration (FHA) and the U.S. Department of Veterans Affairs (VA). Government-backed loans are generally geared towards borrowers with lower income and credit scores whereas conventional loans are typically more popular amongst borrowers with stronger credit and higher income. TheFloridaMortgageCenter.com offers a number of conventional loan options throughout Palm Coast, Flagler Beach, and St. Augustine, Florida.
Conventional loans are able to cover a wide range of borrower needs. These loans are available as conforming and non-conforming loans with both fixed and adjustable rates. Let’s take a look at what each of these terms means and how they affect your loan options.
Fixed-rate vs Adjustable-Rate Mortgages
Fixed-Rate Mortgage – A fixed-rate mortgage will hold the same interest rate for the life of the mortgage. These loans provide borrowers with an added layer of comfort knowing their monthly mortgage payments will always be the same. Fixed-rate mortgages are most often available as 15-year, 20-year, and 30-year loans.
Adjustable-Rate Mortgage (ARMs) – The interest rate on your adjustable-rate mortgage will vary from time to time depending on market conditions. In some cases, ARMs may start with an initial fixed-rate period that can last for a few years. This combination of fixed and adjustable-rate mortgages is known as a Hybrid ARM. As an example, a 5/1 Hybrid ARM would have a 5-year fixed period followed by adjustments each year. ARMs tend to start at a lower rate than comparable fixed-rate mortgages meaning you will pay less early on.
Conforming vs Non-Conforming Mortgages
Fannie Mae and Freddie Mac purchase loans from lenders and sell those loans to investors. In order for a loan to be eligible for purchase, it must meet certain criteria set forth by these two entities. Loans that meet these criteria are called conforming loans. One of the primary factors that determines eligibility is the size of the loan. Fannie Mae or Freddie Mac will only purchase loans that up to $417,000, although loans up to $625,500 are eligible for purchase in specially designated high-cost counties. Additionally, there are certain debt-to-income (DTI) and documentation guidelines lenders must follow as well.
A non-conforming mortgage is simply a loan that does not meet Fannie Mae and Freddie Mac’s requirements. As non-conforming loans are not eligible for purchase, they can be subject to higher rates, down payment requirements, and insurance premiums. The most common non-conforming loan is the jumbo loan. Jumbo loans are loans that exceed the maximum conforming loan amount. These loans are a popular choice for those buyers purchasing luxury or higher-priced homes.
At TheFloridaMortgageCenter.com, we offer a number conventional loan options designed to meet the unique needs of our clients. Whether you are purchasing a home in Palm Coast, Flagler Beach, or St. Augustine, Florida, we will find the right loan for you. For more information on Florida conventional loan options, contact us today!