Conventional Mortgages

 

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 mortgages. Conventional mortgages can be fixed-rate or adjustable rate mortgages and typically have terms of 15 or 30 years. Conventional mortgages can be conforming or non-conforming. Conventional mortgage loans are ideal for borrowers with excellent credit who can afford a higher down payment. Some programs offer a low down payment option as well.

 

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 through 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 $417,000 for most areas of the United States. Loans in excess of $417,000 are considered Jumbo Mortgage Loans.