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Conventional Loans

Conventional Loan

When you are purchasing a home here in Palm Beach County, or anywhere if Florida you may want to consider taking a mortgage called a Conventional Loan. Today’s Conventional Loan with the lowest interest rates is called “Conforming” because it conforms with Fannie Mae and Freddie Mac Guidelines.   Fannie Mae and Freddie Mac are directly involved in over 95% of all loans today, including Government Loans, like FHA and VA Loans.

Since lenders know borrowers meet Fannie Mae or Freddie Mac’s guidelines, they can be more flexible with the terms of the loans, often giving you more options. Down payments as low as 5% are available.  These loans have more rigorous standards than government loans like FHA, so you’ll need good credit and at least 5% of your own personal funds to qualify.  Conventional loans are typically divided into two types: fixed rate and adjustable rate.

Fixed Rate Mortgages

The most popular mortgage available is the fixed rate mortgage, or FRM. The popularity of this loan stems from the stable mortgage rate. The rate stays the same throughout the life of the loan, assuring you the same principal and interest payment each month. This stability allows you to budget your monthly expenses and plan on future savings. The two most common terms for fixed rate mortgages are 15 year and 30 year. The advantages of a 15 year mortgage are a shorter loan term and a lower interest rate. The loan payment on a 15 year loan is higher, but the loan will be paid off in half the time, allowing for faster buildup of equity and a comfortable mortgage payment-free existence after only 15 years.  A 30 year mortgage, while having a longer term and slightly higher interest rate provides an option of a smaller monthly mortgage payment.  Of course all of these loans have no prepayment penalty and can be paid off more quickly through additional principal payments.

Adjustable Rate Mortgages

An adjustable rate mortgage is also an option for your home purchase. The main advantage to getting an adjustable rate mortgage over a fixed rate is a lower introductory interest rate. The most common type of an adjustable rate mortgage is called a “hybrid ARM.”  The loan has both fixed rate and adjustable rate features. The initial fixed rate can last 3, 5, 7 or 10 years, and afterwards adjusts annually for the rest of the life of the loan. This type of loan is most suitable if you expect to live on the property for only as long as the fixed-rate lasts. This of course carries its own risk, given the possibility that you may need to stay in the property for longer than the expected fixed rate period.

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