{"id":4874,"date":"2018-10-17T18:46:08","date_gmt":"2018-10-18T01:46:08","guid":{"rendered":"https:\/\/financer.com\/?p=4874"},"modified":"2024-03-26T08:25:35","modified_gmt":"2024-03-26T15:25:35","slug":"conventional-mortgage-loans","status":"publish","type":"wiki","link":"https:\/\/financer.com\/loans\/articles\/conventional-mortgage-loans\/","title":{"rendered":"Conventional Mortgage Loans"},"content":{"rendered":"\n
A conventional mortgage or conventional loan is a type of home buyer’s loan that is not secured or offered by a government entity. <\/p>\n\n\n\n
Instead, traditional mortgage loans <\/strong>are available from private lenders such as banks, credit unions, and mortgage companies. <\/p>\n\n\n\n Conventional mortgage rates<\/a> are typically better. (This doesn\u2019t seem to fit and unless the linked site is affiliated seems out of place. Also, other mortgage types have better rates like VA or ARMs). <\/p>\n\n\n\n Traditional mortgage loans usually have a fixed interest rate, which means that the interest rate does not change throughout the loan period<\/strong>. <\/p>\n\n\n\n Conventional mortgages are not guaranteed by the federal government. Therefore, banks and creditors typically have stricter lending requirements.<\/p>\n\n\n\n Some government agencies that provide bank mortgages include the Federal Housing Administration<\/strong> (FHA), the US Department of Veterans Affairs<\/strong> (VA), and the USDA Rural Housing Service<\/strong>. <\/p>\n\n\n\n However, there are requirements that borrowers must meet to qualify for these programs.<\/p>\n\n\n\n Two government-sponsored enterprises (GSEs) guarantee some mortgages:<\/p>\n\n\n\n Freddie Mac has provided more than $11.6 trillion<\/strong> in home loans for more than 80 million customers. Founded in 1938, Fannie Mae introduced the 30-year, fixed-rate mortgage<\/strong> loan in the 1950s.<\/p>\n\n\n\n There are caveats to conventional loans that the GSEs may purchase such as \u201cjumbo<\/strong>\u201d loans. These are mortgage loans that are larger than the loan limits set by the agencies and are considered to be \u201cnon-conforming\u201d. <\/p>\n\n\n\n Still, jumbo loans are considered conventional mortgages despite being non-conforming.<\/p>\n\n\n Note<\/strong>: The baseline conforming loan limit for 2022 is $726,200.<\/p><\/div>\n\n\n In some US properties, conforming loan limits<\/strong> are currently higher than $548,250 <\/strong>which covers most people currently in the market seeking loans. <\/p>\n\n\n\n In some US properties conforming loan limits<\/strong> are currently higher than $726,200 <\/strong>and the high-cost limit areas<\/a> cover most people currently in the market seeking loans in these locations. <\/p>\n\n\n\n Conventional Loans come with several perks and some misconceptions that do need clarifying.<\/p>\n\n\n\n Over the years, lenders have tightened the qualifications for traditional home loans, but the basic requirements have stayed the same.<\/p>\n\n\n\n Prospective borrowers must complete an official mortgage application (and usually pay an application fee) and then provide the lender with the necessary documents to conduct a thorough background check, credit history, and current credit assessment.<\/p>\n\n\n\n Contrary to popular belief you don\u2019t need a 20% down payment<\/strong> for a conventional loan. You can get approved for a conventional mortgage loan with as little as 3-5% down<\/strong>. <\/p>\n\n\n\n However, there are benefits that run will save you some money if you can manage to produce 20% upfront.<\/p>\n\n\n\n One of the biggest perks is that the Private Mortgage Insurance (PMI) policy is waived upon a 20% down payment. <\/strong><\/p>\n\n\n Example<\/strong>: On a $100,000 loan you could typically expect to pay 0.5% to 1.2% of the entire loan amount on an annual basis for a Private Mortgage Insurance fee. Let’s say that your PMI fee was 1%. You would be spending<\/span> $83.33 per month or an additional $1,000 a year on a policy that protects the lender if you are unable to pay your mortgage.<\/p><\/div>\n\n\n The PMI drops off once you have 22% equity in your home, but until then you\u2019re paying for a policy that otherwise could\u2019ve been avoided.<\/p>\n\n\n\n When applying for a conventional mortgage, you’ll need:<\/p>\n\n\n\n Previous missteps like bankruptcy can cause delays of 4-6 years<\/strong> for applications and in cases of foreclosures 7 years.<\/p>\n\n\n\n >> Financer.com has 8 ways to drive up your credit score<\/a><\/strong>.<\/p>\n\n\n\n\t\tAbout Freddie Mac and Fannie Mae<\/h2>\n\n\n\n
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Freddie Mac and Fannie Mae buy mortgages from lenders and then resell them to investors. In short, their job is to make mortgages widely available<\/strong>.<\/p>\n\n\n\nHow a Conventional Mortgage Works<\/h2>\n\n\n\n
Requirements for a Conventional Mortgage<\/h3>\n\n\n\n
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Additionally, the purpose of the loan is important. Loans are typically approved under the premise that your purchase is for a specific use such as the following:<\/p>\n\n\n\n\n
The last hurdle in your way to getting approved for a conventional loan is making sure you have a credit score generally above 640<\/strong>. <\/p>\n\n\n\n