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| Conventional mortgages |
| Jumbo mortgages |
| Fixed Rate |
| ARM |
Rates last updated on Saturday, September 07, 2019
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Conventional mortgages
There are two types of conventional loans: conforming and non-conforming loans.
A conforming loan simply means the loan amount falls within maximum limits set by Fannie Mae or Freddie Mac, government agencies that back most U.S. mortgages. On the other hand, loans that don’t meet these guidelines are considered non-conforming loans. Jumbo loans are the most common type of non-conforming loan.
Generally, lenders require you to pay private mortgage insurance on many conventional loans when you put down less than 20 percent of the home’s purchase price.
Pros of conventional mortgages
*Can be used for a primary home, second home or investment property.
*Overall borrowing costs tend to be lower than other types of mortgages, even if interest rates are slightly higher.
*You can ask your lender to cancel PMI once you’ve gained 20 percent equity.
*You can pay as little as 3 percent down for loans backed by Fannie Mae or Freddie Mac.
Cons of conventional mortgages
*Minimum FICO score of 620 or higher is required.
*You must have a debt-to-income ratio of 45 to 50 percent.
*Likely must pay PMI if your down payment is less than 20 percent of the sales price.
*Significant documentation required to verify income, assets, down payment and employment.
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Jumbo mortgages
Jumbo mortgages are conventional loans that have non-conforming loan limits. This means the home prices exceed federal loan limits. For 2019, the maximum conforming loan limit for single-family homes in most of the U.S. is $484,350, according to the Federal Housing Finance Agency. In certain high-cost areas, the price ceiling is $726,525. Jumbo loans are more common in higher-cost areas and generally require more in-depth documentation to qualify.
Pros of jumbo mortgages
*You can borrow more money to buy a home in an expensive area.
*Interest rates tend to be competitive with other conventional loans.
Cons of jumbo mortgages
*Down payment of at least 10 to 20 percent is needed.
*A FICO score of 700 or higher typically is required, although some lenders will accept a minimum score of 660.
*You cannot have a debt-to-income ratio above 43 percent.
*Must show you have significant assets (10 percent of the loan amount) in cash or savings accounts.
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Fixed Rate
A fixed-rate mortgage (FRM) is a fully amortizing mortgage loan where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or "float". The interest rate on a fixed rate mortgage stays the same throughout the life of the loan. The most common fixed rate mortgages are 15 and 30 years in duration. If your interest rate is fixed, your monthly payments do not rise or fall. The 30-year fixed-rate mortgage is more popular than the 15-year because it provides a lower monthly payment for the same loan amount. This means that if you know how much you can afford every month, you can borrow more money — and get a more expensive home — with a 30-year fixed.
Fixed rate loans can either be conventional loans or loans guaranteed by Federal Housing Authority or the Department of Veterans Affairs.
Term: 30 years
Maximum Amount: $726,525
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ARM
An ARM, short for "adjustable rate mortgage", is a mortgage on which the interest rate is not fixed for the entire life of the loan. The rate is fixed for a period at the beginning, called the "initial rate period", but after that it may change based on movements in an interest rate index. For the adjustable-rate mortgage, the interest rate applied on the outstanding balance varies throughout the life of the loan.
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