- Whether you’re financing your first home or your 5th, it’s important to understand the different types of mortgages available. Conventional loans are what many people think about when a standard mortgage comes to mind. These loans are funded through private lenders and not secured by the federal government. Conventional loans come in all shapes and sizes, with adjustable or fixed interest rates and different term lengths. They have more stringent eligibility requirements but great benefits to consider. Lincoln Home Loans offers the most competitive conventional loan options throughout Nashville, Memphis, Clarksville, and the surrounding Tennessee areas.
What Makes Conventional Loans Unique?
There are two basic divisions of mortgages: conventional and non-conventional. Non-conventional loans like FHA loans, VA loans, and USDA loans are insured and semi-regulated through their respective departments to help people get home financing who otherwise might not qualify for conventional loans. They are funded by private lenders, but those lenders have security in that the government will repay loans that go into default. They have low down payments and easy credit qualifying, but often have higher interest rates and cost more over time than conventional loans.
Conventional mortgages have more competitive qualifying requirements, including lower debt-to-income (DTI) ratios, higher credit score requirements, and higher down payments. You can choose the term length that works best for you with a conventional loan, typically from 10-30 years. You can choose an adjustable rate loan, in which the interest rate will change during the life of the loan, or a fixed-rate loan, in which the interest rate and monthly payment stay the same.
There are many benefits to consider when it comes to conventional home loans:
- They have no lending limits from any government entity (although they are divided into conforming and non-conforming loans, which we’ll describe shortly).
- They have lower interest rates for long-term savings.
- No private mortgage insurance is required after a borrower reaches 20% equity on the loan.
- They do not have income limits as many non-conventional loans do.
Conforming and Non-conforming Conventional Loans
There is a misconception that conforming and conventional are interchangeable terms. Conforming loans are actually one of two types of conventional loans. Conforming loans are purchased in bulk from lenders by government-sponsored entities (GSEs) Fannie Mae and Freddie Mac. While Fannie Mae and Freddie Mac are not departments of the federal government like the FHA, VA, and USDA, they will only purchase mortgages up to a certain value. In Davidson County, those limits are:
- $890,100 for a one-unit property
- $1,139,500 for a two-unit property
- $1,377,400 for a three-unit property
- $1,711,750 for a four-unit property
If you want to purchase a property that exceeds these limits, you will need a non-conforming “jumbo” loan. Jumbo loans stay on lenders books, which means they incur a higher level of risk. To secure a jumbo loan, you will need a great credit score, even lower DTI and likely a higher down payment. Jumbo loans typically have higher interest rates, but they can be refinanced after some time has passed to save.
Explore the Possibilities of Conventional Loans
When you’re ready to learn more about conventional loans and get a no-obligation quote, Lincoln Home Loans is here for you. We are closely connected in the community and can help you through the entire mortgage process, from quote to close. We work with clients in throughout Nashville, Memphis, Clarksville, and the nearby Tennessee communities.