A Guide to Different Types of Conventional Loans in Houston
If you’re house-hunting in Houston (or anywhere else for that matter), chances are you’ve already explored several banks and mortgage lenders for a home loan. You’ve probably been introduced to different mortgage options making the decision on what loan can you avail, which ones would you qualify for, or which would give you the most value financially a bit complex. To help you make that long-term commitment to a bank or lender, it makes sense to be informed about the different types of conventional loans and which one would be most feasible for you.
With different programs available to different types of homebuyers, there are still certain situations that make it challenging for them. Our real estate training program helps aspiring homebuyers learn how to leverage owner financing as an alternative to get the home of their choice anywhere in Houston. Like a bank-approved homebuyer, this third-party owner financing program offers borrowers 30-year amortization with reasonable interests and free of whopping balloon payments. They also get to refinance through a conventional lender without worrying about pre-payment penalties. Explore the Houston housing market by filling out the MLS form below and let us know if you find a home in your budget and desired location. We will get you on your home buying journey in no time.
What are Conventional Loans
Simply put, these mortgages are not insured or guaranteed by a federal unit or government agency. Although most, if not all, loans under this category are subject to loan limits set by the government along with income and credit score minimums. Conventional loans often cost less than government-backed mortgages such as FHA loans, but qualification requirements are more difficult to satisfy.
Different Types of Conventional Mortgages
These are one of the two conventional loans categorized by the Consumer Financial Protection Bureau. These types of mortgages are defined by the loan limits set by the government, more particularly, the Federal Housing Finance Agency. The funding criteria, on the other hand, are set by different agencies – The Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae). They’re the most common type of conventional loan offered by lenders and their stringent requirements make up for its low-interest rates.
The second of the two conventional loans defined by the Consumer Financial Protection Bureau, non-conforming mortgages are loans that do not comply with the limits set by government-sponsored enterprises such as Fannie Mae and Freddie Mac. Since they’re nonconforming by structure, borrower requirements are different depending on the type of mortgage and lender. Common examples under this category include government-insured mortgages (FHA, VA, and USDA) as well as jumbo loans or any arrangement the goes beyond Fannie Mae’s and Freddie Mac’s limits.
As mentioned, all loans vary in different aspects. But if there’s one common factor all loans have is that borrowers are all required to pay for interest. Borrowers who qualify for these types of loans pay for the same amount of interest throughout the mortgage’s term. It’s one of the more preferred choices – especially the ones with 30-year amortization periods – for budget-conscious borrowers because of the financially viable monthly payment. Several lenders also offer similar fixed interest arrangements for shorter-termed loans.
The opposite of Fixed-Rate Loans, Adjustable-Rate Mortgages (ARM) have interest rates that go high or low as the loan progresses. The typical setup for this type of loan has borrowers paying a fixed low-interest rate for the first three, five, seven, or ten years depending on the terms of the loan. Once the introductory period passes, interest rates will then adjust to the latest market standards and monthly payments may go lower if the interest rates are lower. Rates continue to adjust (usually on an annual basis) until you refinance or settled the mortgage fully.
Most lenders recommend the 20% down payment to save borrowers the long-term costs of Private Mortgage Insurance or PMI. But conventional loans these days have become more flexible with down payments that go as low as 0% of the home’s total value. Of course, depending on your down payment, the type of loan, and the lender's policies, these types of loans have varying requirements, terms, and conditions. In any case, qualifying for these types of loans all boil down to credit scores and the borrower’s verified monthly income.
Conventional loans can be convoluted and may add more pressure to the entire home buying process. To help you narrow down your home buying considerations, search through these available properties.
Disclaimer: Shop Owner Finance/ TL Global is not a lender. We are a real estate training agency. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.