CONVENTIONAL

A conventional mortgage is a home loan that isn’t guaranteed or insured by the federal government and conforms to the loan limits set forth by Freddie Mac and Fannie Mae. You can get a conventional loan at a fixed or adjustable rate. The term (or length) of a conventional loan is usually 15, 20 or 30 years. These mortgages are available to everyone, but borrowers need good credit to qualify. Requirements vary from lender to lender, but 620 is typically the minimum credit score needed to obtain a conventional loan.

Although you can put down as little as 5%., if your down payment is under 20%, you’ll have to pay private mortgage insurance, a fee meant to mitigate the risk to the lender that you might default on your loan. Many borrowers enjoy the consistent monthly payment that comes with a fixed-rate Conventional loan, as this tends to make budgeting easier.

Many borrowers enjoy the consistent monthly payment that comes with a fixed-rate Conventional loan, as this tends to make budgeting easier. However, adjustable-rate mortgages (ARMs) may make the initial payment lower with the payment adjusting after the fifth, seventh or tenth year and every two years after for the term of the loan.

For borrowers whose income may go up, an adjustable rate mortgage might be just the ticket to help with the early years of payments. The initial interest rate is lower than the rate for a fixed-rate loan. There is a maximum amount the loan can adjust over the life of the loan known as a cap rate. The interest rate is determined by adding a margin rate to the index rate. Adjustment periods can be monthly, every six months, or every year, among other choices.

Advantages of a Conventional Mortgage

• Available for purchase, refinance, or cash-out refinance.
• Minimum down payment of 5%
• Credit scores as low as 620 may be accepted.
• Fixed rates offer consistent monthly payments and simplify planning and budgeting.
• ARMs may have lower initial monthly payments than fixed-rate loans and adjust after the fixed term.