What is a conventional mortgage loan?
A “conventional mortgage” refers to any mortgage loan that is neither insured nor guaranteed by the federal government. Conventional mortgage loans can be either fixed mortgages or adjustable-rate mortgages, including hybrid ARMs.
Additionally, these types of loans may be conforming or non-conforming. Conforming means that the loan meets the standards set by Fannie Mae and Freddie Mac (government-sponsored enterprises).
It’s easy to get bewildered! Be careful not to confuse conventional with conforming, as the two terms are very different! However, neither is considered a government loan (despite the fact that Fannie and Freddie are now under government control). Here’s the difference:
- Conforming conventional mortgage loans follow the guidelines of government-sponsored enterprises, which you know as Fannie Mae and Freddie Mac.
- Non-conforming conventional mortgage loans do not follow those guidelines.
There are also subcategories of conventional mortgage loans:
- Amortized conventional loans: An amortized conventional mortgage loan provides for the same principal and interest payment to be paid every month, from the beginning to the end, with the last payment paying it off in full.
- Adjustable conventional loans: An adjustable conventional mortgage loan provides for the loan payments to fluctuate along with interest rates. There is however a cap rate over which the loan cannot be adjusted.
Who qualifies for a conventional mortgage loan?
You qualify if…
1) Your monthly housing costs meet a specified percentage of your gross monthly income. Monthly housing costs include:
- mortgage principal
- mortgage interest
- property taxes
- property insurance
2) Your credit rating is at least 620 on the FICO score
3) Your income is sufficient to pay housing costs—plus all your additional monthly debt.
To see if a conventional mortgage loan is the best mortgage for your specific financial circumstances, it’s best to consult with a mortgage professional. Here at Avrus Financial and Mortgage, we’re ready to listen to your goals and concerns, and to explore all the possible options to help you with a first mortgage or a refinance.
Why not ask us how… today?