Understanding Conventional & Jumbo Mortgages

Do you have a 3% or greater down payment, PERFECT credit and can document your income? If so, a conventional (Fannie Mae or Freddie Mac Conforming) loan is probably the best option for you. If not, you may want to look at a FHA or Federal Housing Authority loans, a 100% RD or USDA Rural Development loan, or if you are a veteran or spouse of a veteran a  VA or Veteran Administration loans may be the best option. Contact a Smart Move Agent before contacting any lender about a mortgage. We know which lenders give our clients the best rates and which will say YES or NO to your unique financial situation!

Conforming loans tend to offer the homebuyer the lowest rates and mortgage insurance expenditures. The current maximum loan amount for a single family residence in the State of Louisiana was changed in 2018 to $484,350 from the previous maximum of $424,100.  A homebuyer seeking to purchase a duplex as of the change in 2018 will have a maximum loan amount of $620,200, a triplex is $749,650 and the maximum loan for a four-plex purchase is $932,600. For larger home purchases that exceed these loan limits, the borrower would need to apply for a Conventional/Jumbo Loan. Since there is no private mortgage insurance (PMI) on Jumbo Loans, they tend to require stricter credit and income requirements and a larger down payments. An alternative which prudent high price home buyers may choose is to do a 1st – 2nd mortgage combination. This will allow the buyer to take advantage of the lower conforming interest rates. The risk to the buyer may be that the 2nd mortgage may have an adjustable or variable rate which could go up over time. You will want to speak to your professional mortgage banker about the best options for your unique circumstances.

Purchasing a multi-unit property is an excellent way for a homeowner to defer or even eliminate their mortgage payment by living in one unit and renting out the remaining. The homeowner must intend to reside in one of the units for a minimum of 2 years.

Conventional (or conforming) loans and Jumbo Loans allow the borrower the most amount of options when it comes to fixed or variable rate programs. The borrower can choose a 30 year fixed rate, 15 year fixed rate or one of several shorter term fixed rate periods. These may be 7 year fixed, 5 year fixed or 3 year fixed. These shorter term fixed rates can also be amortized over 10 years, 15 years, 20 years or 30 years. These shorter term programs allow a borrower who may not intend to live in a property for an extended period the option of reducing their interest expense based on the shorter time they need the mortgage.

IMPORTANT NOTE: A homebuyer utilizing a conforming loan product will be limited by the seller’s ability to only pay up to 3% of the sales prices towards the buyers closing costs, pre-paid items such as tax and insurance escrows and title insurance. However, if the home buyer is putting down 10% or more the seller could pay up to 6% concessions towards the buyer’s closing costs and pre-paid items such as taxes, and insurances. A buyer must take this into account when determining if they will have enough funds to close the transaction when coupling their down payment and closing expenses.

These loans tend to be written by local banks and direct mortgage lenders. Since most banks charge an application fee to even determine if a borrower qualifies for these programs, we recommend a direct lender who never charges our clients upfront fees!