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Conventional Mortgage

CONVENTIONAL LOAN

Conventional loan is a mortgage loan for individuals with good to excellent credit and can afford a down payment of 3% or more. This loan type isn’t guaranteed by any government agency. This loan follows the underwriting mortgage guidelines of either Fannie Mae or Freddie Mac, which are both publically held corporations and not part of the federal government. The popular guideline is the size of loan which was $417,000 as of 2013 for single family homes. Simply put, it is any mortgage loan that is not insured or guaranteed by the federal government.

TYPES OF CONVENTIONAL LOAN

  • A conventional loan can either be a conforming loan or a non-conforming loan. What determines the loan type is the family size and loan amount.
  • Conforming Loan: this type of loan meets the standards set by government-sponsored enterprises Fannie Mae and Freddie Mac. They have a minimum credit score of 620 and have a max loan-to-value ratio (LTV) of 97 percent. This loan type has greater liquidity than the non-conforming loan.
  • Non-conforming Loan: this type of loan has loan amount that is higher than the conforming loan limit and thus results in higher mortgage rate. They have lower credit score than the conforming loan and higher loan-to-value ratio (LTV).

CONVENTIONAL LOAN REQUIREMENTS

  • Income – your income should be stable, regular, full, and timely.
  • Credit Score – this is a major factor in considering whether you qualify for the conventional loan. If you have credit issues, the chances of getting the loan are reduced.

ADVANTAGES

  • No mortgage insurance premiums (if you put 20% down payment).
  • There are low down payment programs that don’t require mortgage insurance if you put less than 20% down payment.
  • More lenders to choose from (almost every bank and lender offers conventional loan)
  • Conventional loans can be used to finance any property.
  • It can be used even when you don’t intend to occupy the property.
  • An individual can hold numerous conventional loans.
  • No maximum loan limit.
  • You can cancel your mortgage insurance after two years if your home’s value has increased enough to give you 20 percent equity.