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 down payment of 5% or more.
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 on 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 areas of the United States. Loans in excess of $453,100 are considered Jumbo Mortgage Loans.