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Is a conventional loan going to be the best fit for you? Check below to see if this is a good option. If you aren’t sure or just want our expert opinion, please reach out to us!
Do you remember when you first started day dreaming about owning a home? Maybe you’re in the spot right now. You probably thought about every little detail you want for you home, except maybe what type of loan would fit you best. If you’re in the market for a home, chances are you’ve probably heard of a Conventional Loan, but might not know the details – or how conventional loans stack up against other options. Below, let’s explore what a conventional loan is and see if it’s the right fit for you.
The conventional loan is the most popular type of mortgage taken in America, making up almost 74% of all loans in 2017. Many people enjoy the flexibility that a conventional loan offers – we’ll get to that below. These loans are different from many others you may have heard of like VA, FHA, and USDA loans because they are NOT backed by the federal government. Instead, the loan is backed by private lenders, and insurance on the loan is usually paid for by the borrower.
Though conventional loans offer buyers more flexibility, they’re also riskier because they aren’t insured. With a conventional loan, the lender is at risk if you default, so unless you put down 20% of the amount on the home, you’ll be expected to carry private mortgage insurance, or PMI.
A conventional loan is one that is not formally backed by any government entity such as FHA, VA, and USDA. Rather, it is a loan that follows guidelines set by Fannie Mac and Freddie Mae, two agencies that help standardize mortgage lending in the U.S.
Let’s take a look at some of the benefits and FAQs below.
There’s a reason why conventional loans are so popular. This type of loan has several features that make it a great choice for most people:
Even though conventional loans offer so much flexibility, there are still decisions you will have to make. Once you have chosen this type of loan, you’ll have to decide on things such as how much you can afford to put down and how long you want your loan term to be.
This might seem like a lot of information to take it, but don’t worry. We’ll be there every step of the way and help guide you through each of these decisions.
Conventional loans come as either conforming or non-confirming.
In order to be considered a conforming conventional loan, the loan must meet the guidelines set by Fannie Mae and Freddie Mac.
For a Fannie Mae or Freddie Mac conforming loan, the baseline loan limit was $453,100 in 2018.
What about conventional loans that exceed the loan limit? These are considered non-conforming conventional loans.
Simply put, a non-conforming conventional loan (also referred to as a jumbo loan) is a conventional loan not purchased by Fannie Mae or Freddie Mac because it doesn’t meet the loan amount requirements. Instead, non-conforming loans are funded by lenders or private institutions.
The amount of the borrower’s down payment can affect the interest rate and final loan costs. A 20% down payment is not a requirement for a conventional loan.
From the 10% Piggyback Loan to the 3% HomeReadyTM and Conventional 97 loans, conventional low-down-payment options not only exist but are extremely popular with today’s buyers.
When you meet with a lender, they’ll ask for documentation like recent pay stubs, tax returns, bank statements, and other financial information. They want to make sure you have a steady income and can make your monthly mortgage payments on time.
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