A conventional loan is a mortgage that is not guaranteed or insured by any government agency.
It is most often a fixed rate and term, but adjustable rate mortgages are available. While primary residences are the most common type of purchase with a conventional loan, second homes, investment properties and land loans are also available as conventional.
Your credit score is a major part of the equation when qualifying for a conventional mortgage. Fannie Mae and Freddie Mac require that the borrower have a credit score of at least 620 to qualify. It is important to note that the lower your credit score is, the higher the interest rate will be.
Conventional loans have DTI (Debt to Income) requirements on the loan. Most conventional loans are capped at 45% of your gross qualifying income compared to your debt load and new mortgage payment.
Any conventional mortgage loan with less than a 20% down payment requires private mortgage insurance (PMI). Smaller down payments require a higher PMI premium. For example, 5% down requires a higher premium than 10% down. When you hit the equity mark of 20% on your home the PMI will fall off.
An escrow account for your home owner’s insurance and property taxes each month is required if you do not put 20% or more down on the property.
Rate & Term Options
Thirty-Year Fixed Rate Mortgage
The traditional 30-year fixed-rate mortgage has set monthly principal and interest payments. This may be a good choice if you plan to stay in your home for seven years or longer. If you plan to move within seven years, then adjustable-rate loans are usually cheaper. As a rule of thumb, it may be harder to qualify for fixed-rate loans than for adjustable rate loans. When interest rates are low, fixed-rate loans are generally not that much more expensive than adjustable-rate mortgages and may be a better deal in the long run, because you can lock in the rate for the life of your loan.
Adjustable-rate Mortgage (3/1 ARM, 5/1 ARM, 7 /L ARM)
These increasingly popular ARMS—also called 3/1, 5/1 or 7/1—can offer the best of both worlds: lower interest rates (like ARMs) and a fixed principal and interest payment for a longer period of time than most adjustable rate loans. For example, a “5/1 loan” has a fixed monthly principal and interest payment and interest for the first five years and then turns into a standard adjustable-rate loan, based on then-current rates for the remaining 25 years. It’s a good choice for people who expect to move (or refinance) before or shortly after the adjustment occurs.
Jumbo loans exceed the conforming loan limits set by the Federal Housing Finance Agency (FHFA). The current conforming loan limit in most of the US is $548,250. Unlike conventional mortgages, a jumbo loan is not eligible to be purchased, guaranteed, or securitized by Fannie Mae or Freddie Mac. Designed to finance luxury properties and homes in highly competitive local real estate markets, jumbo mortgages come with unique underwriting requirements.
Fifteen-Year Fixed Rate Mortgage
This loan is fully amortized over a 15-year period and features set monthly principal and interest payments. It offers all the advantages of the 30-year loan, plus a lower interest rate—and you’ll own your home twice as fast. With a 15-year loan, you commit to a higher monthly payment.
Infinity Mortgage has options for both cash-out, and rate and term refinances.
A rate and term refinance is often done to secure a better interest rate or change the length of the mortgage note. Cash-out refinances allow borrowers to convert equity from their home into cash.
FHA Loans are mortgages guaranteed or insured by the Federal Housing Administration (FHA), a US government agency.
The low down payment required as well as the allowed credit score make this program very attractive to many borrowers. The guidelines are also more lenient with respect to collections, judgments, and bankruptcies.
FHA loans can only be used for a primary residence.
FHA loans require a minimum 580 credit score. Remember, the lower your credit score is, the higher the interest rate will be on the loan. FHA loans allow for non-occupying co-borrowers to be on the loan.
The debt to Income ratio (DTI) on FHA loans is 45% of your gross monthly qualifying income compared to your overall debt load with the new home loan. However, with a higher credit score there are allowances for DTI ratios.
Mortgage insurance is required on all FHA loans. Up-front MIP (Mortgage Insurance Premium) is 1.75% of the loan amount and is paid at closing. There is also a monthly mortgage insurance fee of .85% of the loan amount. (with a 5% down payment this drops to .80% per month) If your down payment amount is less than 10% there is MI for the life of the loan.
There are many flexible options for down payment funds on an FHA loan. Gift funds can come from family members for the entire down payment and closing costs. Grant and bond programs from the state can also be used toward a down payment.
Applicants may qualify for state grant and bond programs that can also be used toward a down payment. Contact us for more information on grant and bond programs.
With no down payment* or mortgage insurance premium, VA loans are an exceptional financing option for military veterans.
Because a portion of the loan is guaranteed by the US Department of Veterans Affairs, lenders are able to offer more relaxed guidelines, lower interest rates, and there is no down payment required*. VA loans are available for primary residences only and this benefit may be used repeatedly over time. There are also VA refinancing programs.
VA loans require a 560 minimum credit score and allow debt to income (DTI) ratios up to 45%. This is your monthly gross qualifying income compared to your debt load and new house payment.
VA loans require a Certificate of Eligibility (COE) from US Department of Veterans Affairs to determine eligibility for the loan. A loan cannot be issued without a COE in the borrower’s name.
* There is a funding fee on all VA loans. The fee is dependent on how many times a veteran has used their benefit. The first-time usage fee is 2.15% of the loan amount. The subsequent usage fee is 3.3% of the loan amount. This fee can be rolled into the loan amount and can be waived for disabled veterans.
Veterans can use use this benefit for multiple home purchases over time. You can only ever have one existing VA loan on a property at any given time because this benefit can only be used for a primary residence.