Loan Options for Buying or Refinancing a Home:
Conventional Loans
Conforming Loans
Conforming loans make up the majority of conventional loans and when people talk of conventional loans they are usually referring to conforming loans. These mortgages are called conforming loans because they conform to underwriting guidelines and limits set by Fannie Mae and Freddie Mac. In most U.S. counties, the conforming loan limit is $510,400. However, in some high-cost counties the limit is higher. In Los Angeles, New York City, San Francisco, Washington, D.C., and the entire state of Alaska, for example, the limit is $765,600.
Terms and rates
Most conforming loans are offered at fixed-rates for terms of either 10, 15, 20, or 30 years. It is not uncommon, however, for homebuyers to get a 20- or 30-year fixed-rate mortgage and then decide to refinance at a different rate within 10 years. Loan rates themselves are set by the lenders and are influenced by a number of factors, including the Consumer Price Index, home sales, inflation, the Federal Reserve Interest Rate, and the GDP. In general, if the economy is doing well then interest rates will rise; if it is doing poorly, then they will fall. While lenders determine their own mortgage rates, Freddie Mac has maintained a weekly survey of average mortgage rates since 1971.
Types of Loans
A conventional home loan is any loan not guaranteed by a government agency. These are by far the most common type of home loans and, if your credit score is good, they are the easiest to apply for. Conventional loans are divided into two categories: conforming loans and non-conforming loans. Since non-conforming loans, such as jumbo loans, are discussed on separate pages of this site, below we will look exclusively at conforming loans.
Military members and their families may be able to qualify for VA home loans. Started by the U.S. Department of Veterans Affairs (VA) in 1944, these home loans have enabled countless veterans to qualify for attractive home financing options. VA home loans are guaranteed by the VA and offered by VA-approved lenders. For qualifying borrowers, they could be a good alternative to conventional loans.
If you are looking to buy a luxury or high-priced home then you may want to look into applying for a jumbo loan. A jumbo loan is a mortgage that exceeds loan limits set by the Federal Housing Finance Agency (FHFA). As such, while they are a conventional loan in the sense that they are not insured by any federal agency, they are considered a non-conforming loan because they exceed federally defined loan limits.
FHA loans are a popular home financing option, especially for people with poor credit scores or low income. These loans are insured by the Federal Housing Administration (FHA), which is a government agency, and provided by FHA-approved lenders. While FHA loans are available to everybody, they are a particularly good choice for individuals who are having trouble getting approved for conventional loans.