When you first consider financing – or refinancing – a property in California, Texas, Colorado, or Arizona, a conventional loan is often the first option for both lenders and borrowers – and for good reason. Over 80% of loans borrowed in California and beyond are conventional loans. Depending on the down payment you have available and your credit score, a conventional mortgage is the best loan type for many buyers.
But the options available under the umbrella of conventional loans are extensive, and you will need a reliable partner to guide you through the process. Michael Landrum at Landrum Loans is a loan originator experienced in providing conforming and non-conforming conventional loans that make it possible to buy your perfect home in your state’s competitive real estate market. Learn more about what loans are available by calling or texting at (916) 813-9306.
What Are Conventional Loans?
Conventional loans are distinguished from other loan types, such as FHA loans, USDA loans, and VA loans, in that they are funded entirely by private lenders. Some conventional mortgages are known as “Conforming,” which means that they meet certain government criteria that reduces risk on the part of the lender, while others are “non-conforming,” which means that all of the risk of the loan is placed on the bank or lender.
Conventional loans provide more leniency on both the part of the lender and the borrower. Lenders can offer more competitive mortgage rates and larger amounts. Borrowers can shop around for a loan that lets them purchase their dream home on terms that benefit them. They also face fewer requirements in regards to the type of home they purchase, letting you purchase homes in any city or town, as well as buy a second home or investment property, and refinance an existing mortgage for a better rate.
The conventional loans we offer at Landrum Loans are:
- 30 Year Fixed Mortgage – Most mortgages are a 30 year fixed-rate loan. These provide an interest rate and monthly payment that does not change throughout the life of the loan. The interest rates tend to be a bit higher, but because payments are spread over 30 years, the monthly payment is traditionally much lower than other types of loans.
- 15 Year Fixed Mortgage – A 15 year loan offers a lower interest rate when compared to a 30 year mortgage. The tradeoff is higher monthly payments as you repay the principle of the loan more quickly. If you have the funds to afford the monthly mortgage payment, a 15 year fixed rate mortgage can save you a considerable amount and help you own your home sooner.
- Adjustable-Rate Mortgage – Unlike fixed rate mortgages, the interest rate on adjustable-rate mortgages will change in accordance with market rates. The initial fixed rate period will offer a low rate below that of a fixed rate loan before the rate increases. An adjustable-rate mortgage is a potential option for anyone who plans to pay off their mortgage quickly or may move after only a few years.
The flexibility of a conventional loan is why most home buyers or homeowners in California and beyond take out this type of mortgage. Because lenders compete with each other over these types of loans, they traditionally offer lower rates, lower fees, and more opportunities than other types of mortgages. They can also be useful for those with a low down payment (depending on if the borrower and home meet specific criteria) or if the borrower wants to avoid refinancing their loan in the future.
The drawback is that some borrowers must meet tighter qualifications for some non-conforming loans, since lenders may not be protected by government backing. This may mean a larger down payment, better credit, or a slightly higher interest rate. At Landrum Loans, we help you determine how much home you can afford based on your finances and what loan terms are currently available, and see if we can match you to the one that is best for your financial situation.
Options Available for Traditional Loans in Colorado
A conventional mortgage covers a wide range of mortgage lending options, and is highly adaptable to meet the needs of individual home buyers. As a loan originator licensed in 4+ states, Michael Landrum has access to hundreds of mortgage brokers, lenders, and investors offering many different rates, and has the expertise to help you secure the type of loan you need, including:
- Low Down Payment Loans – Down payments on conventional loans can be as low as 3% if this is your first home purchase. Other factors in your financial situation can help you secure a down payment on a conventional loan of 10% or less, although you will typically be required to pay private mortgage insurance until you reach 20% equity.
- Conforming Loans – Conforming loans meet specific requirements of Fannie Mae or Freddie Mac, which allows lenders to sell their loans back to the government if at any time – thus reducing risk on the part of the lender. This reduced risk is then passed onto the borrower, with lower rates, lower down payment, and other benefits. There are limitations to these types of loans, however, especially “loan limits.” Fannie Mae and Freddie Mac have a maximum limit. This limit changes annually, and can vary depending on where you are located, with a range from $647,000 in some counties to $970,000 in others.
- Jumbo Loans and Super Jumbo Loans – When you need to borrow more than is covered by a conventional loan, you may need a non-conforming loan, also called a jumbo loan mortgage or super jumbo mortgage. These loans are available for high value properties, and let you borrow enough to cover the cost of your home.
- Flexible Payoff Terms – Based on the type of loan you choose, there are payment terms ranging between 5 and 30 years to give you a monthly payment and interest rate you can afford, and the one best suited to your needs.
If you are unsure which of these loan options is best for your home purchase or home refinance, we can give you all the information you need to understand and make a confident decision.
Qualifying for a Conventional Loan
Because there are several loan types that fall under the category of conventional loans, qualification requirements vary extensively. A conforming loan may have a low down payment and high debt to income ratio requirement while a jumbo loan may always require a large down payment. In general, the base requirements to qualify for a conventional loan are:
- Required down payment ranging from 3% to 40% depending on home type, loan amount, and home buyer status (i.e. first time home buyer or not).
- 3% to 25% equity for a refinance.
- Credit score generally above 620.
- Debt to income (DTI) ratio lower than 50%.
- Private mortgage insurance (PMI) for loans with less than a 20% down payment.
The private mortgage insurance of a conventional loan, however, typically drops off once you’ve reached a certain threshold (typically 80% LTV). This is better than FHA loans, where the PMI lasts for the life of the loan unless you refinance.
Which Loan Type is Right for Your Home Purchase or Refinance?
Conventional loans make up the majority of real estate lending in CA, CO, AZ, and TX. They often provide the lowest interest rates, least restricted buying requirements, down payment options to fit nearly every budget, and a PMI that drops off once your LTV has reached 79%.
But even when you have determined that a conventional loan is the best option for you, several choices remain. Our loan qualification process at Landrum Loans will help you narrow down and make a final choice based on information about the home and your finances, such as:
- Is this a primary residence, second home, or investment property?
- How long do you plan to live in this home?
- What down payment can you afford?
- What monthly payments can you afford?
- What does your credit score, income, and overall financial situation look like?
Landrum Loans works with you to determine these questions and make recommendations for the right loan for your needs. Our process starts by qualifying you based on the answers and information you provide. We can then present loan options that are tailored to your finances and home purchase goals.
We also want to provide you with the education and resources you need to make the right decision. For first time home buyers to real estate investors, and every type of borrower in between, we will guide you through the process, identifying the pros and cons of each loan type, and pointing you toward the right conventional loan for your family.
Find Out Loan You Can Qualify for Today with Landrum Loans
Are you starting to consider a home purchase? Maybe you want to take advantage of the low interest rates available today and refinance your home in California, Arizona, Texas, or Colorado. A conventional loan will make it possible to get affordable interest rates and a payoff schedule that works with your budget. Landrum Loans is the mortgage company that you can rely on to have your best interests in mind throughout the process. Get started today with a prequalification and call us at (916) 813-9306.