Conventional loans
A conventional mortgage loan meets the requirements set by Fannie Mae or Freddie Mac, government-sponsored enterprises that purchase mortgages from lenders and sell them to investors. Unlike government-backed loans, such as FHA loans, conventional loans have stricter credit requirements. They are not governed by a single set of guidelines but can vary depending on the borrower’s situation and the type of loan or property being financed.
Regarding down payments, first-time home buyers can secure a conventional mortgage with as little as 3% down. However, the down payment requirements for other borrowers may differ based on multiple factors.
- If you’re not a first-time home buyer or making no more than 80% of the median income in your area, the down payment requirement is 5%
- Multi-unit homes may need to put down 15%
- Second homes, require at least 10% down
- The minimum down payment requirement is 5% if you’re getting an adjustable-rate mortgage
In terms of eligibility, a credit score of at least 620 is generally required to qualify for a conventional loan. Lenders will also assess your debt-to-income ratio (DTI), which measures the portion of your monthly income allocated to debt payments divided by your gross monthly income. Most conventional loans require a DTI of 50% or lower.
Conforming conventional loans must adhere to the loan limits established by Fannie Mae and Freddie Mac, which change annually. Look up your county’s loan limits on this interactive map.
The rates for conventional loans change daily. The rate you will get will depend on your personal financial situation.
Jumbo loans
A jumbo loan is a mortgage loan that exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA). This limit varies depending on the cost of living in each area. Jumbo loans are for higher-priced homes that exceed the conforming loan limits. Jumbo loans are considered non-conforming loans because they do not satisfy the terms and conditions set forth by Fannie Mae, Freddie Mac, and their regulator, The FHFA.
Jumbo loans typically require a higher down payment, higher credit score, and stricter underwriting rules than conforming loans. Additionally, jumbo loan interest rates tend to be slightly higher than conforming loan rates.
Although jumbo loans can be harder to qualify for, they offer some advantages over conforming loans. First, since jumbo loans are not subject to the same limits as conforming loans, borrowers can access larger loan amounts. This makes them ideal for financing more expensive properties. As property values continue to rise, borrowers are seeking out more jumbo loan options.
