Conforming Home Loans
These are conventional loans that follow the terms and conditions established by the guidelines of Fannie Mae and Freddie Mac. Conforming loans are equal to or less than the dollar amount established by the conforming loan limit set by Fannie Mae and Freddie Mac’s and meets their funding criteria.
Types of Conforming Loans
The interest rate and the principal payments remain fixed throughout the loan. Keep in mind your monthly escrow account payment could vary from year-to-year as taxes and insurance rates change.
30 Year Fixed Rate Mortgage
The traditional 30-year fixed-rate mortgage has a constant interest rate and monthly payments that never change. This may be a good choice if you plan to stay in your home for seven years or longer. If you plan to move within seven years, then adjustable-rate loans are usually cheaper. As a rule of thumb, it may be harder to qualify for fixed-rate loans than for adjustable rate loans. When interest rates are low, fixed-rate loans are generally not that much more expensive than adjustable-rate mortgages and may be a better deal in the long run, because you can lock in the rate for the life of your loan.
15 Year Fixed Rate Mortgage
This loan is fully amortized over a 15-year period and features constant monthly payments. It offers all the advantages of the 30-year loan, plus a lower interest rate—and you’ll own your home twice as fast. The disadvantage is that, with a 15-year loan, you commit to a higher monthly payment. Many borrowers opt for a 30-year fixed-rate loan and voluntarily make larger payments that will pay off their loan in 15 years. This approach is often safer than committing to a higher monthly payment, since the difference in interest rates isn’t that great
Adjustable Rate Mortgages (ARM)
The interest rate on the loan fluctuates over the period of the loan. Periodic adjustments to the interest rate are made based on changes to a defined index. The loan’s interest rate is determined by adding a fixed number of points to the defined index. When it comes to ARMs there’s a basic rule to remember…the longer you ask the lender to charge you a specific rate, the more expensive the loan.
Conforming 5/1 ARM
A 5/1 ARM product is an adjustable rate mortgage that has a fixed interest rate for the first 5 years, then adjusts annually. The biggest benefit of a 5/1 ARM loan is that the interest rate is lower than just about every other type of mortgage loan available.
A 5/1 ARM may be a good choice for you if you think it is possible that you may move or refinance in the next five years. A 5/1 ARM is also very popular because the extremely low rate allows borrowers to maximize their cash flow to enjoy lower monthly payments and free up extra cash monthly to pay toward eliminating other monthly debts (i.e. credit cards, car payments, student loans, etc.).
A 5/1 ARM offers very substantial benefits with the low monthly payments associated with this type of loan. A borrower, however, must realize there is some risk in knowing
Should you Pre-qualify for a Conventional Home Loan?
It is always best to pre-qualify for conventional home loans. If you do not pre-qualify, you may be setting yourself up for disappointment. It will also be a waste of your time and effort to search for a house that you cannot afford.
There are several lenders available who can work with you to pre-qualify. By doing this, you will ensure that you have all the paperwork and income needed for each home you look at. This will give you the freedom to search for houses that are within your budget. When you do this, you can also plan accordingly for any updates or renovations which may be needed.
If you are planning on purchasing a fix it upper, you need to ensure you have the savings for improvements. If you do not have money for renovations, you need to talk to the lender to see if this can be part of your loan.
If you skipped the pre-qualification step, then you will be in for a lot of surprises. The best way to avoid this to find a lender and pre-qualify for your conventional home loans which we can help with!
Choosing a Mortgage Lender
When you begin looking for a conventional mortgage loan lender, it can be overwhelming. The key is not to become overwhelmed and have a game plan in place. Here are some questions you need to ask yourself before you begin your search:
- Do you want face to face interaction or is over the phone okay?
- Do you want to work with a big company or a small local one?
- What loans do they specialize working on?
- What type of fees do they charge?
- Are their current customers happy? If there is negative feedback, you need to question this.
As you peruse their website, most of these questions should be answered. Once you answer these questions, you should narrow down your list. For the remaining companies, you need to schedule meetings with them. These can be over the phone or face to face, whichever you prefer.
Secure the Best Rates
If you are considering purchasing a home, this is what you need to do now, to ensure that you secure the best possible conventional home loan rates. First and foremost you need to ensure that your credit is in good standing so that you can qualify you for a conventional loan.
Depending on the lender, the minimum credit score is 620. If you are not sure what your credit score is, you can download free apps that will show you your score and where your problem areas are. This way, you can fix any errors before applying for a home loan. The most common sense way to improve your credit would be to pay your bills on time. Every time you are late paying a bill, it is reported to the credit agencies thus dinging your credit. If you have poor credit due to paying bills late, this is not something that a lender would look favorably towards because it shows that you will probably pay them late as well. The better your credit score, the better the interest rate you will receive.
Next, you need to ensure that you have the minimum down payment saved. Depending on the lender the minimum down payment can range from 10 to 20%. If you do not have this amount saved, you need to begin saving, or you may not be approved for the conventional loan. The more money you have to put down the better interest rates you will receive.
FHA or Conventional Mortgage Loan: Which do you Need?
Before you purchase a home, you need to know which mortgage you need: FHA or a conventional loan. As you are researching the various mortgage loans, you will see which ones would work the best for you.
FHA mortgage loans are intended for those who have low credit scores or little savings. The minimum credit score for this type of mortgage is 580, and the down payment is 3.5%. If the credit score is between 500 and 579, some lenders will still extend financing. If they agree to this, the minimum down payment may be raised to 10%. These borrowers will be required to pay two types of private mortgage insurance. This is meant to protect the lender from default.
Conventional mortgage loans are intended for those who higher credit scores and more savings. The minimum credit score for this type of mortgage is 620, and a minimum down payment is 20%. Some lenders will lower the down payment if the applicant has a higher credit score.
If you do not meet the minimum requirements for a conventional mortgage loan, then you need to apply for an FHA. When you meet with a qualified mortgage lender, they will be able to assist you with the perfect loan.
Get a Great Conventional Loan from Our Lenders
If you want to secure the best conventional home loan rates, you need to follow these tips. First and foremost, you need to improve your credit rating. If your credit is below 620, then you need work on raising your score. There are several ways to improve your credit score including the following:
- Pay all bills on time.
- Limit number of hard inquires.
- Keep credit card balances at 30% or below.
- Keep credit cards open after paying them off.
If you need assistance with your credit, there are credit counseling agencies available. It would also be a good idea to download credit monitoring apps. These apps would help you keep track of your credit and notify you if it were to drop.
Another way to secure good rates would be to have a good down payment. The minimum down payment is 10%, but some lenders will offer better rates with a bigger down payment.
Finally, you can work with your lender to see what else they would recommend. In some instances, if you choose a shorter mortgage period, you will get a better rate.
What Kind of Home Loan Lender do you Want?
If you are looking for a lender who offers the best conventional mortgage loans, you should be prepared to do your homework as this is a personal decision. Each borrower has the criteria they use when gauging what lender is the best and it is important you take the time to find one you feel comfortable working with as well as who will cooperate with you offering the best possible interest rates.
During this process, you should peruse their websites, read their client testimonials and then schedule a consultation appointment with them. If you want to get the best conventional home loan rates, follow these tips and call our lenders at NHL today!