All About Conventional Home Loans

Ah, the dream of home ownership. It’s as much the Texas Dream as it is the American Dream. And there are a lot of ways that Crystal Clear can help make it happen, the most popular option being the conventional home loan.

A conventional loan is one that isn’t backed by any government program, like the Department of Veterans Affairs, the Federal Housing Administration, or the US Department of Agriculture. Instead, it’s backed by private lenders.

This difference means that if the borrower defaults on the loan, it’s the private lenders who are at risk. For this reason, borrowers whose down payment is below the lender’s threshold must pay for private mortgage insurance, coverage that protects the lender in case of loan default.

But even though conventional loans are the most popular type of loan, there are still several kinds of conventional loans.

Conforming Conventional Loans

The Federal Housing Finance Agency sets maximum loan amounts for conforming conventional loans. This maximum can vary from county to county. Loans that meet Fannie Mae or Freddie Mac loan standards and do not exceed this ceiling are called conforming conventional loans.

Nonconforming Conventional Loans

Loans that exceed the conforming conventional loan maximum or that diverge from conforming loan underwriting standards are nonconforming conventional loans. One of the most common kinds of nonconforming loans are jumbo loans, which allow borrowers to purchase homes at higher price points.

Fixed-Rate Conventional Loans

Within the two above categories, home loans can feature a fixed rate for the entire loan term. With a fixed-rate conventional loan, the interest rate stays the same even when the overall interest rate market fluctuates.

Adjustable-Rate Conventional Loans

A borrower can sometimes find a lower rate by selecting an adjustable-rate conventional loan. With this kind of loan, rates fluctuate with the broader market, usually after an introductory period of locked-in rates.

Low-Down-Payment Conventional Loans

Even with a conventional loan, borrowers may be able to make a smaller down payment than the traditional amount. Options depend on the lender. With these options, the borrower will need to purchase private mortgage insurance. Our article on down payments has more.

The Crystal Clear Mortgage experts understand that with so many options, it can be difficult to know which kind of loan is right for you. That’s why we’re here! We’re glad to talk with you and guide you to the right home loan. You can also compare the loan types we work with.