A conventional loan by definition is simply a mortgage that is not guaranteed by any government agency including the Federal Housing Administration (FHA) and the U.S. Department of Veterans Affairs (VA). This includes loans from banks, credit unions, or mortgage companies. Mortgage loans guaranteed by government agencies are often geared towards the borrower with lower income and credit scores. On the other hand, conventional loans have become a popular choice amongst borrowers with stronger credit and generally higher income. Austin Mortgage Associates offers a variety of conventional loan options throughout Round Rock, Cedar Park, Georgetown and the surrounding Texas communities.
No single loan is ideal for every borrower which is why there are so many conventional loan options available. Let’s take a look at some of these options available for conventional mortgages.
Fixed-rate vs Adjustable-Rate Mortgages
Fixed-Rate Mortgage – A fixed-rate mortgage will maintain the same interest rate throughout the life of the mortgage. This type of loan offers the borrower peace of mind knowing that monthly payments will never change. Fixed-rate mortgages are typically available as 15 year, 20 year, and 30 year loans.
Adjustable-Rate Mortgage (ARMs) – The interest rate on an adjustable-rate mortgages is going to vary from time to time. ARMs can also start with an initial fixed-rate period. Mortgages that are a combination of fixed and adjustable-rate periods are considered Hybrid ARMs. For example a 7/1 Hybrid ARM would have a 5 year fixed period followed by adjustment every year thereafter. The advantage of an ARM is that they generally start at a lower rate than fixed-rate loans meaning you pay less at the beginning of the mortgage.
Conforming vs Non-Conforming Mortgages
Conforming – Fannie Mae and Freddie Mac establish certain criteria for the loans they will purchase. Loans that meet these criteria are known as conforming loans. The primary factor that determines eligibility is the size of the loan. Currently the largest loan Fannie Mae or Freddie Mac will purchase is $417,000, although this can be as high as $625,500 in what are considered high-cost counties. Conforming loans must also meet certain debt-to-income (DTI) and documentation guidelines as well. Conforming limits in Texas Counties:
Non-conforming – A non-conforming loan is one that does not meet the requirements set forth by Fannie Mae and Freddie Mac. This can be due to the size of the loan or perhaps unmet DTI requirements. As they are not eligible for purchase, they are often subject to higher rates, down payment requirements, and insurance premiums.
Jumbo Loans – Jumbo Loans are the most common non-conforming loan. These are loans that simply exceed the amount eligible to be considered a conforming loan. Jumbo loans are a great option for borrowers interested in higher-priced or luxury homes.
At Austin Mortgage Associates, we specialize in a variety of conventional loan options throughout the state of Texas. Whether you are purchasing a home in Austin, or Round Rock, we can tailor a loan to your specific needs. For more information on conventional loan programs, contact us today!
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