Conventional Loans

While Fannie Mae and Freddie Mac are very similar, they have some key differences in their underwriting. Fannie Mae tends to purchase loans from larger commercial banks, while Freddie Mac often works with smaller banks, like community banks and credit unions. These differences can sometimes lead to slight variations in how they evaluate a borrower's application. For example, Fannie Mae's automated underwriting system is called Desktop Underwriter®, while Freddie Mac's is Loan Product Advisor®. Your AFC Loan Expert will be able to help you navigate these differences and find the best option for you.

The qualification process for a Conventional Loan involves a comprehensive review of several key financial factors. Lenders will examine your credit history to assess your creditworthiness, analyze your current income and existing debt to calculate your debt-to-income ratio, and verify the funds you have available for a down payment. A significant advantage of this loan is that with a down payment of 20% or more, you may be able to avoid paying Private Mortgage Insurance (PMI), a monthly fee that protects the lender in case you default. By avoiding PMI, you can significantly lower your monthly mortgage payment and free up funds for other expenses. Your Loan Expert will also help you choose a loan term that best fits your financial goals, with common options including 15, 20, or 30-year terms. a fixed rate mortgage loan utilizes the same interest rate for the life of your loan. This rate will stay the same regardless of market fluctuations.

Loan Term Types

• ‍Fixed Rate Loan: A fixed rate mortgage loan utilizes the same interest rate for the life of your loan. This rate will remain constant regardless of market fluctuations, providing you with stability and the certainty of predictable monthly payments for the entire term of the loan. This makes budgeting easier and protects you from potential rate increases.‍
• Variable Rate Loan: Also known as an Adjustable-Rate Mortgage (ARM), this loan uses an interest rate that fluctuates according to the loan structure and a specific market index. Typically, an ARM has an initial fixed-rate period (e.g., 5, 7, or 10 years), after which the interest rate can increase or decrease periodically. This can lead to lower initial payments, which may be appealing if you plan to move or refinance before the fixed-rate period expires, but it also introduces the risk of higher future payments.‍
• Loan Term: The term of your mortgage loan is how long you have to repay the loan. Choosing a shorter term (like 15 years) can help you pay off your home faster and save a significant amount on interest over the life of the loan, as shorter-term loans often come with lower interest rates. Conversely, a longer term (like 30 years) can offer a lower monthly payment, making homeownership more accessible and manageable for your budget, although you will pay more in interest over time.

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