Conventional vs Unconventional Loans Flashcards
What are conventional loans?
Not secured by an established government program like the Federal Housing Administration (FHA), Department of Agriculture (USDA) or Department of Veterans Affairs (VA). Instead offered by private lenders and will generally follow more strict requirements compared to other loan types.
What is another name for a conventional loan?
Conforming loan because they conform to the rules set forth by Fannie Mae and Freddie Mac the two largest investors of conventional loans.
What are the two types of conventional loans?
Fixed-rate mortgages and adjustable rate mortgages
What is a fixed-rate mortgage?
Have an interest rate that never changes. (Interest rate will stay the same over the life of the loan)
What is an adjustable rate mortgage? Also known as ARM.
Has an interest rate that varies throughout the life of the loan. (The interest rate can go up or down after the initial “fixed-rate” period depending on the market)
What is a conventional loan?
They are backed by the government or secured through a bank or private lender, making them ideal for individuals with lower income or less than perfect credit. Down side is that the loan limit is lower.
What do you need to qualify for a conventional loan?
higher credit score, lower debt-to-income ratio, and larger cash down payment.
What is an FHA loan?
Insured by the Federal Housing Administration and require a small down payment.
What is a VA loan?
Loans that are backed by the Department of Veterans Affairs. Generally do not require a down payment but veterans and active duty personnel who secure a VA loan do need to certify that they intend to personally occupy the property as a primary residence.
