Types of Conventional Loans

Which type of Conventional loan might be right for you? 

Conventional loans come in various types. Each type has its own terms and qualifications, such as fixed or adjustable interest rates, loan limits, and down payment requirements. The right Conventional loan for you will depend on your individual circumstances and financial goals, like whether you're a first-time homebuyer, a homeowner looking to refinance, or if you're seeking a jumbo loan for a more expensive property.

Some of the most popular types of Conventional loans include: 

Fixed-Rate Mortgages

Fixed-rate mortgages have a fixed interest rate and monthly payment for the entire term, typically 15 or 30 years. They offer stability and predictability, making them ideal for long-term homeowners.

Adjustable-rate Loans (ARMs)

Adjustable-rate loans (ARMs) are mortgages that usually begin with a different (and sometimes lower) interest rate than they finish with. They have an introductory period, similar to how credit cards sometimes offer 0% APR for a limited amount of time.

After that introductory period is over, the interest rate will adjust based on the current market rates. The length of the introductory period and the amount the rate increase will depend on the terms and conditions of your individual loan.

Conforming Conventional Loans

Conforming Conventional loans meet guidelines established by Fannie Mae and Freddie Mac. These guidelines include the maximum loan amount, borrower income and credit requirements, and the down payment amount.

Jumbo Loans 

Conventional loans that exceed the loan limit placed by Fannie Mae and Freddie Mac are known as Jumbo loans. These are non-conforming conventional loans. They cannot be sold to Fannie Mae and Freddie Mac.

These loans are usually used for more expensive properties than those that fall below the Conforming loan limit. Jumbo loans typically have higher interest rates than conforming loans. They are more difficult to qualify for and are given out less frequently. 

Portfolio Loans

Portfolio loans are also a type of non-conforming loan. They are not sold to Fannie Mae and Freddie Mac, but are instead, kept by the lender on their books. This allows lenders more freedom to set their own terms and qualifications for their loans.

Conventional 97 Loans

Conventional 97 Loans are designed for first-time homebuyers and require a 3% down payment. They are backed by Fannie Mae and include private mortgage insurance (PMI), making them a good option for those with good credit but limited savings.

Interest-Only Loans

Interest-Only Loans allow borrowers to pay only the interest for a set period (5 to 10 years), resulting in lower initial payments. After this period, payments increase to include both principal and interest, making them suitable for those expecting higher future income.

Hybrid ARMs

Hybrid ARMs combine fixed and adjustable rates. They have a fixed rate for an initial period (3, 5, 7, or 10 years) and then adjust annually. They offer lower initial payments and are good for those planning to sell or refinance before the rate adjusts.

Conventional Refinance loans

Conventional Refinance Loans allow homeowners to replace their existing mortgage with a Conventional loan to access the benefits of a new loan. These benefits can include a potentially lower interest rate or change loan terms. They may reduce monthly payments, shorten the loan term, or give you access to the equity you have built up in your home.

Which type of Conventional loan might suit your needs will depend on your unique circumstances and financial goals.