Conventional Conforming Loans
Conventional Conforming Loans are most common types of mortgage loans. A conforming loan is a mortgage that meets (conforms) to the loan limits set forth by the Federal Housing Finance Agency (FHFA), currently $715,000 (or greater in some select "high-cost" markets) and the overall guidelines and criteria set forth by Freddie Mac and Fannie Mae. Conforming loans are advantageous due to their low interest rates and can serve a wide array of borrowers. Down payments can be as low as 3% for first-time homebuyers and as low as 5% for non-first-time homebuyers. Interest rates on conforming loans will vary depending on the transactions unique criteria such as a borrower's credit score (as low as 620), amount of down payment, property type (single family detached or attached, condominiums, multi-family units), length of time the lender must guarantee the rate based on the closing date for the purchase of home, occupancy status (primary residence, second home or investment property), etc. Conforming loans are typically either fixed rates or adjustable rate mortgages (ARMs) but can include variations such as buydown loans or even balloon loans.
What is a Conforming Buydown loan? This type of loan is a fixed rate mortgage that includes a special feature, typically paid for by the seller of a home, that reduces the payment to amount equivalent to an interest rate, for example, 2% below the fixed note rate for the first year and 1% below the fixed note rate for the second year before rising the actual fixed note rate for the remainder of the loan term (typically a 30 year fixed rate). This is called a 2-1 buydown loan and it can be a good way for some buyers to ease into being a homeowner. There are also 1% buydown loans (only 1% below the note rate for the first year) or even a permanent buydown where the buyer or seller pays to permanently reduce the fixed rate loan by prepaying a certain amount of interest upfront at the closing (known as discount points). Which of these variations, like any type of loan choice, fits certain buyer better or worse than others so there is not neccesarily a "best" buydown. It just depends on the buyer's unique situation and needs.