Conventional Loans

Conventional loans are defined simply as mortgages that are not guaranteed by any government agency. Government-backed loans such as those insured by the Federal Housing Administration (FHA) and the U.S. Department of Veterans Affairs (VA) are generally designed to make homeownership easier for individuals with lower income and credit scores. Conventional loans on the other hand are generally offered to borrowers with stronger credit and higher income. At American Pacific Mortgage, we offer a number of conventional loan options designed to meet the varying needs of Oregon residents throughout Portland, Happy Valley, Damascus, Boring, and Gresham.

You will often find conventional loans classified as either conforming or non-conforming mortgages. Conforming loans are eligible for purchase by the two entities Fannie Mae and Freddie Mac, whereas non-conforming loans are not.

Conforming vs Non-Conforming Mortgages

Fannie Mae and Freddie Mac purchase mortgages from lenders and in turn package and sell those loans to investors. Every loan that these two entities purchase must meet certain criteria. Conforming loans are mortgages that meet all of the necessary criteria to be eligible for purchase. The first factor that is looked at when determining eligibility is the size of the loan. Fannie Mae or Freddie Mac will only purchase loans that do not exceed the conforming loan limit of $417,000. In specially designated high-cost counties, loans amounts can reach $625,500 and still be eligible. There are debt-to-income (DTI) and documentation guidelines that lenders must also follow.

Conforming Loan limits in Oregon:

County Single-Family Duplex Triplex Fourplex
Clackamas $417,000 $533,850 $645,300 $801,950
Multnomah $417,000 $533,850 $645,300 $801,950

 
Loans that do not meet Fannie Mae and Freddie Mac’s criteria and are ineligible for purchase are considered non-conforming loans. The most common non-conforming loan is the jumbo loan which is a loan that exceeds the conforming loan amount for a specific area. Jumbo loans are often a popular choice for buyers interested in purchasing luxury or higher-priced homes. Since that they cannot be purchased by Fannie Mae and Freddie Mac, non-conforming loans are often subject to higher rates, down payment requirements, and insurance premiums.

Conventional loans are available as Fixed-Rate or Adjustable-Rate mortgages. Hybrid alternatives that combine both fixed and adjustable-rate options are also quite popular.

Fixed-rate vs Adjustable-Rate Mortgages

Fixed-Rate Mortgage – A fixed-rate mortgage will hold the same interest rate for the life of the mortgage. Fixed-rate mortgages are generally available as 15-year, 20-year, and 30-year loans. Fixed-rate mortgages offer peace of mind knowing that your mortgage payment will never change.

Adjustable-Rate Mortgage (ARMs) – The interest rate on an adjustable-rate mortgage will vary from time to time depending on conditions in the market. Loans that start with an initial fixed-rate period that transition to adjustable-rate mortgages are known as Hybrid ARMs. For example, a 7/1 Hybrid ARM would have a 7-year fixed period followed by adjustments each year thereafter. ARMs often start out at a lower rate than fixed-rate mortgages meaning you will pay less early on.

American Pacific Mortgage offers a variety of conventional loan options designed to meet the unique needs of our clients throughout Portland, Happy Valley, Damascus, Boring, and Gresham. Whether you are looking to purchase your first home, or need to refinance your existing mortgage, we will find the loan right loan for you. For more information on our conventional loan options, contact us today.