Even among first-time buyers, conventional mortgages are frequently chosen. You may be surprised, though, to hear that there is more than one type of conventional loan. Read more about investment property loans.

Read on to find out what the main categories of conventional mortgage products are and how those categories may affect you. 

What is a conventional home loan?

Any mortgage loan that is not backed or insured by the government is considered a conventional loan. Many conventional loans adhere to minimum income and credit score requirements as well as loan restrictions established by the government. Though conventional loans are more difficult to qualify for, they can save you money compared to government-backed mortgages like FHA loans.

Common Conventional Loan Structures

1. Conforming conventional loans

A conventional loan is considered “conforming” if the loan amount is less than the limit established by the Federal Housing Finance Agency and the loan meets extra Fannie Mae or Freddie Mac conditions. You might also hear the term “GSE loans” for a conforming loan because Fannie Mae and Freddie Mac are government-backed financial loans. Read more about real estate syndication.

2. Nonconforming conventional loans

A conventional loan is considered nonconforming if it either exceeds the FHFA loan limit or uses underwriting standards that differ from those established by Fannie Mae and Freddie Mac. One typical type of a non-conforming conventional loan is a jumbo loan. For loans above $484,350 in the majority of counties inside the United States, a jumbo loan may be required.

3. Fixed-rate conventional loans

You must pay interest on your mortgage every month, regardless of whether it is conventional or nonconforming. When you get a conventional loan with a fixed rate, the interest rate won’t change for the duration of the loan. The monthly payment on a conventional loan with a 30-year fixed rate is typically rather manageable, so many purchasers go with this option. However, loans with shorter durations are also available.

4. Adjustable-rate conventional loans

A variable-rate mortgage (or ARM) is an alternative to a fixed-rate mortgage. Rates on hybrid ARMs, which are a type of conventional loan with an adjustable rate, can go up as well as down over time. Rates on ARMs often change once every year following an initial fixed-rate period of three, five, seven, or ten years. Check out loan calculator with amortization schedule.

5. Low-down-payment conventional loans

There was a time when a 20% down payment was required to secure a conventional loan. The term “80/20 conventional loan” comes from the fact that borrowers who fulfil this standard only need to finance 80% of the value of the home. However, the down payment requirements for conventional loans have gotten more lenient in recent years.

3% down payment

HomeReady and HomePossible are two conventional mortgage programmes that require only a 3% down payment (sometimes known as “3 down conventional loans”) from borrowers who qualify. Hence, you can hear people refer to them as “conventional 97 loans.”

5% down payment

In order to qualify for a conventional mortgage, borrowers with poorer credit scores may need to put down at least 5% of the property’s worth in cash. The term “conventional 95 mortgage” or “5 down conventional loan” might describe this type of financing. Read more educational post on lemonrage.

6. Conventional renovation loans

Finding the ideal home within your price range can be challenging. When prices are high or the supply of ready-to-home-in houses is scarce, buying a fixer-upper might be a viable option for becoming a homeowner.

Conventional mortgages like the CHOICERenovation loan and HomeStyle loan make it possible to buy a home and make the necessary improvements all at once.

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