Loan Types

The majority of mortgages are considered either conforming or nonconforming loans.

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Conforming Loans

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A conforming loan refers to a conventional mortgage, which must meet the basic qualifications set by the Federal Housing Finance Agency (FHFA) and Federal Home Loan Mortgage Corporation (FHLMC)

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These loan requirements include:

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• Maximum Limit: The loan amount must be at or below $726,200. Higher loan limits apply to multiunit properties

• Credit Score: Your loan must meet the lender’s specific criteria to qualify for a conforming mortgage. For example, you must have a credit score of at least 620 to qualify for a conforming loan

• Debt to Income Ratio: Gross income to monthly debt, including subject property, not to exceed 50% of total

 

 One Republic Mortgage can help determine if you qualify based on your unique financial situation! 

 

 

Conventional Mortgages (For primary, vacation, and investment homes):

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Conventional Mortgages are the most common types of home loans. A borrower will need a minimum credit score of at least 620 to qualify, a stable income, and not exceeding the maximum Debt-to-Income (DTI) ratio. With a conventional mortgage, a home can be purchased with as little as a 3% down payment, and if the down payment is at least 20% there is no monthly PMI (Private Mortgage Insurance: additional monthly fee).

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Pros:

• Competitive interest rates

• Lower down payment for qualifying loans/borrowers

• Higher loan amount limits

• Avoiding private mortgage Insurance

• A broader range of property types

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Cons:

• PMI (private mortgage insurance) if the down payment is less than 20%

• A credit score of 620

• Debt to Income ratio (DTI) must be under 50%

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Fixed-Rate Mortgages (Conventional, FHA, and VA):

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In a fixed-rate loan, the interest rate never changes. This is a popular choice for many borrowers, especially if they plan to stay in the home for a long time. The stability of a fixed-rate home loan lets buyers purchase with confidence, knowing that their principal and interest payments will never change, making budgeting more consistent.

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The most popular form of fixed-interest home financing is the 15,20 and 30-year fixed mortgage amortization. Regardless of the loan term (meaning the length of the loan), the repayment works the same. Each monthly payment consists of part principal and interest, progressively the principal portion increasing and interest decreasing.  The longer the term, the lower the payment.

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Pros:

• Monthly payments don’t change over the life of your loan

• Protection from rising interest rates for the full term of the mortgage

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Cons:

• The total interest paid is higher on a longer-term loan

• Typically, fixed-rate loan rates are slightly higher than Adjustable-Rate Mortgages

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Adjustable-Rate Mortgage (ARM):

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The opposite of a fixed-rate mortgage is an adjustable-rate mortgage (ARM). ARMs are 30-year amortization payment loans, with interest rates that fluctuate varying on the market. Initially, there is an introductory period of fixed interest that is typically 5, 7, or 10 years.

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After the preliminary period ends, rates will change based on the market. The safeguard in place includes rate caps, which dictate how much the interest rate can change. Rate caps can prevent rapidly rising interest rates. This type of mortgage can be good for someone purchasing a starter home and doesn’t expect to live there for the loan’s full term, or an investor looking for a fix and flip.

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Pros:

• Lower interest rates for the initial fixed period

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Cons:

• Monthly payments may increase and change after the initial fixed period is over

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