For many homebuyers, a Conventional loan holds the key.
Wondering which type of mortgage is best for you? Many homebuyers prefer Conventional mortgages because they offer more flexibility and the costs accompanying the loan are often less expensive.
Conventional loans are not insured or guaranteed by the government. Instead, the loan is backed by private lenders. This can make them harder to qualify for. If you have a solid credit score and little debt, a Conventional loan is a great option. Even if that’s not the case, there’s still a chance you can qualify.
Another reason people like Conventional mortgages is because they allow you to purchase a more expensive home. There are two types of Conventional loans: conforming and non-conforming. In order to be considered conforming, the loan must meet the guidelines set by the Federal Housing Finance Agency (FHFA). Good news — the FHFA raised conforming loan limits again this year. The 2021 maximum conforming loan limit is $548,250. And in areas with higher home prices, the limits are even greater. We can let you know what the maximum is in your neighborhood.
Conventional loans that exceed the loan limit are called non-conforming or Jumbo loans. Embrace offers our own Jumbo loans. Ours are less complicated and often easier to qualify for. We offer as little as 10% and 20% down for loans up to $1.5M and $2.5M, respectively, and have options for buyers with credit scores below 740.
Conventional and FHA loans are the two most common types of mortgages in the country. Understanding the requirements for each can help you figure out which one is right for you.
Conventional
Conventional loans conform to Fannie Mae/Freddie Mac guidelines and are a financial agreement between the lender and the borrower. Conventional loans are not government-backed so they may be harder to qualify for than FHA loans, but they typically have lower costs.
- May offer lower interest rates
- No private mortgage insurance (PMI) with 20% down payment. Shorter-term PMI with less than 20% down.
- More expensive home purchases possible
- Available as fixed-rate and adjustable-rate mortgages
- Require minimum credit score of 620
- Often require 20% down payment. Some gift funds allowed.
- May require less documentation and therefore take less time to process
FHA
An FHA loan is administered by the Federal Housing Administration (FHA) and is easier to qualify for than a Conventional loan. With the FHA guaranteeing the loan, lenders are more willing to approve applications, but FHA loans are usually more costly.
- Down payments as low as 3.5%
- Single-family homes, condos, multi-unit properties, and manufactured homes
- Mortgage insurance is required
- Entire down payment and closing costs can sometimes be covered with gift funds
- Extra funding available for renovations and repairs with FHA 203(k) program
- FICO(R) Scores as low as 580 may qualify
Frequently asked questions
Can you refinance with a Conventional loan?
What does it mean to be pre-qualified?
How do interest rates affect my mortgage?
What's the best way to get started?
How do you qualify for a loan?
30-Year Fixed-Rate Refinance Mortgage Example:
The payment on a $225,000 30-year fixed-rate cash out refinance loan at 3.250% with a 70% loan-to-value (LTV) is $979.21 with 2 points due at closing. The Annual Percentage Rate (APR) is 3.520%. This assumes a FICO score of at least 690. Payment does not include taxes and insurance premiums, which will result in a higher monthly payment. Interest rates and annual percentage rates (APRs) are based on current market rates and are subject to change without notice. Rates offered may be subject to pricing add-ons related to property type, loan amount, LTV, credit score, and other variables. Mortgage insurance may be required for LTV >80%. If mortgage insurance is required, the mortgage insurance may increase the APR and the monthly payment. Stated rate may change or not be available at the time of loan commitment or lock-in.
30-Year Fixed-Rate Purchase Mortgage Example:
The payment on a $225,000 30-year fixed-rate purchase loan at 3.125% with a 70% loan-to-value (LTV) is $963.84 with 2 points due at closing. The Annual Percentage Rate (APR) is 3.390%. This assumes a FICO score of at least 710. Payment does not include taxes and insurance premiums, which will result in a higher monthly payment. Interest rates and annual percentage rates (APRs) are based on current market rates and are subject to change without notice. Rates offered may be subject to pricing add-ons related to property type, loan amount, LTV, credit score, and other variables. Mortgage insurance may be required for LTV >80%. If mortgage insurance is required, the mortgage insurance may increase the APR and the monthly payment. Stated rate may change or not be available at the time of loan commitment or lock-in.
