Conventional loans are defined as mortgages not guaranteed by any government agency. This includes agencies such as the Federal Housing Administration (FHA) and the U.S. Department of Veterans Affairs (VA). Government-backed loans are generally designed to make home ownership easier for individuals with lower income and credit scores. San Diego conventional loans on the other hand are typically geared towards borrowers with stronger credit and higher income. Peoples Home Equity offers a number of conventional loan options to meet the needs of San Diego residents.
Conventional loans can be classified as either conforming or non-conforming mortgages. Conforming loans are eligible for purchase by Fannie Mae and Freddie Mac while non-conforming loans are not. Let’s take a further look at what makes a loan eligible for purchase by these two entities.
Conforming vs Non-Conforming Mortgages
Fannie Mae and Freddie Mac purchase loans from lenders and in turn sell those loans back to investors. Before one of these entities will purchase a loan, it must meet certain criteria. Loans that meet these criteria and are eligible for purchase are called conforming loans. The most common factor that determines eligibility is the size of the loan. Fannie Mae or Freddie Mac will only purchase loans up to the conforming loan limit which is $417,000. In specially designated high-cost counties, loans up to $625,500 are eligible for purchase. There are debt-to-income (DTI) and documentation guidelines that lenders must follow as well.
Peoples Home Equity is a Fannie Mae Direct Lender meaning our loans are sent directly to Fannie Mae rather than an intermediary servicer. This gives our clients access to more flexible underwriting and loan options. Investor overlays from non-direct lenders can require higher credit scores, inflated down payment requirements, and can limit the number of properties an individual can finance.
San Diego Conforming Loan Limits:
A non-conforming mortgage is simply a loan that does not meet Fannie Mae and Freddie Mac’s criteria and is therefore not eligible for purchase. Non-conforming loans can be subject to higher rates, down payment requirements, and insurance premiums. The most common non-conforming loan is the jumbo loan which is simply a loan that exceed the maximum conforming loan amount. Jumbo loans are popular choice for buyers interested in purchasing luxury or higher-priced homes.
Fixed-rate vs Adjustable-Rate Mortgages
San Diego conventional loans are available as Fixed-Rate or Adjustable-Rate mortgages. There are also hybrid alternatives that combine both fixed and adjustable-rate options.
Fixed-Rate Mortgage – A fixed-rate mortgage will hold the same interest rate for the life of the mortgage. Fixed-rate mortgages are most often available as 15-year, 20-year, and 30-year loans.
Adjustable-Rate Mortgage (ARMs) – The interest rate on your adjustable-rate mortgage will vary from time to time depending on market conditions. ARMs may start with an initial fixed-rate period that can last for a set number of years. This combination of fixed and adjustable-rate mortgages is known as a Hybrid ARM. A 7/1 Hybrid ARM would have a 7-year fixed period followed by adjustments each year thereafter. ARMs tend to start at a lower rate than fixed-rate mortgages meaning you will pay less at the start of the mortgage.
Peoples Home Equity offers a variety of conventional loan options designed to meet the unique needs of our clients in San Diego. Whether you are looking to purchase a home in downtown San Diego, or need to refinance your mortgage on a home in Point Loma, we will find the loan right loan for you. For more information on San Diego conventional loans, contact us today.