Different Kinds of Conventional Loans for Home Buyers

If you’re thinking about purchasing or refinancing a property, and you’re looking for the conventional home loan options available to you, you’ve come to the right place. This post will detail the different kinds of conventional loans for home buyers – so you can nail down exactly what type of loan you want and how you can qualify for it.

What defines a conventional home loan?

A conventional loan is any type of home loan that’s not guaranteed or insured by the government. Conventional loans typically fit the average buyer, so they’re also the most common. These mortgages are available through private lenders or Fannie Mae and Freddie Mac – two government entities that come with their own guidelines…

Conforming conventional home loans

Fannie Mae and Freddie Mac loans are so-called “conforming” conventional home loans – which means that the mortgage fits within their funding criteria. Those criteria consist of your credit score, down payment, debt-to-income ratio, employment, and county loan limit. 

Essentially, if you have good credit (over 620), steady employment, not too much debt, and a down payment over 5%, you’re an average buyer and you’ll likely qualify for a conforming conventional home loan – so long as the property in question doesn’t exceed your county loan limit (which differs everywhere). If it does, you may fall into the “non-conforming” conventional home loan category.

Non-conforming “jumbo” conventional home loans

Jumbo home loans are those which fit the average buyer in the same ways as conforming home loans – except for the price of the property. If that exceeds your county loan limit, then you’re looking at a jumbo – or non-conforming – conventional home loan. But regardless of the value of your property, you’ll have to pay interest – and there are a couple of different options for that.

Fixed-rate conventional home loans

If you’re applying for a conventional loan, you’ll have to decide how to set up your interest. Fixed-rate conventional home loans have fixed interest rates and fixed payments. You can lock down an interest rate for 5, 10, or even 30 years. The advantage of this is predictability: you know well in advance what your payments will be and can budget accordingly, and you’re protected if interest rates go up. The downside, however, is that you’ll be stuck paying the same rate if interest rates fall.

Variable-rate conventional home loans

On the other side of the coin, variable-rate conventional home loans allow you to set your interest at a market rate. Interest rates go up and down with the times – so when rates are higher, your payments will be more expensive and vice versa. The upside of this is the ability to benefit from a low interest rate environment. But you’ll be paying more if interest rates rise – plus, it’s harder to budget for a loan with shifting payments.

There are a lot of options and variables to consider. But if you do check all the boxes and qualify for a conventional home loan, the good news is that they’re typically approved quickly and with little paperwork – they are the standard option after all. Get in touch with UW Funding today if you’d like to move forward with a loan application or just find out more about the different kinds of conventional loans for home buyers. We’ll go through everything with you – and as a mortgage broker, we always have your best interests at heart.