These loans are backed by a private, non-government entity and are made available through wholesale lenders and other financial institutions. Conventional Loans can either have fixed or adjustable rates. A fixed-rate mortgage means that your rate will be the same throughout the life of the loan. An adjustable-rate mortgage (ARM) means that your mortgage rate will stay fixed for a certain number of years (usually 5 or 10) and then it will fluctuate. While many homeowners prefer the stability of a fixed-rate mortgage, the lower initial rate of an adjustable-rate mortgage is something to consider, especially if you know that you will be moving after a few years. Keep in mind that, as rates decrease in the future, you can always refinance into a better loan.
Let's dive into some of the finer details about conventional mortgages. Conforming loans are limited to $647,200 in most counties and lenders generally prefer to see a FICO credit score of 640 or higher. Down payments for conventional mortgages can be as little as 3% down. However, mortgages with a Loan-To-Value (LTV) ratio higher than 80% will likely require mortgage insurance, which will go away once you have 20% equity in your home.