What are Conventional Mortgages?
A conventional loan generally refers to a mortgage loan that follows the guidelines of government sponsored enterprises (GSE’s) like Fannie Mae or Freddie Mac. Most mortgages are “conventional”, which can be fixed- or adjustable-rate. Conventional mortgages can be conforming or non-conforming. These loans are ideal for borrowers with excellent credit history, who can afford a higher down payment. Some programs offer as low as 3% down payment option.
What is the difference between Fixed Rate and Adjustable Rate Mortgages?
Adjustable-rate mortgages, or ARMs, fluctuate in relation to the rate of a standard financial index, such as the LIBOR. Monthly payments can go up or down accordingly. Fixed-rate mortgages interest rate remains the same throughout the term of the loan; therefore, payments are the same each month.
What are Conforming and Non-Conforming Loans?
Conforming loans follow the terms and conditions set by Fannie Mae and Freddie Mac. The Office of Federal Housing Enterprise Oversight (OFHEO) sets the criteria for what constitutes a conforming loan limit that Fannie Mae and Freddie Mac can buy. Currently, the conforming limit set by OFHEO is $453,100 for most of the areas of the United States. Loans in excess of $453,100 are considered Jumbo Mortgage Loans.
All loan requests are subject to credit approval as well as specific loan program requirements and guidelines. With Adjustable Rate Mortgage loans, the rate is variable and may increase or decrease every year after the initial fixed rate period based on changes to an index. This could result in an increase in the monthly payment.