Conventional loans are the most commonly utilized type of loan. A conventional loan is typically a loan that is insured by one of the two GSO’s (Government Sponsored Organizations), Fannie Mae or Freddie Mac. As of January 1, 2019, the maximum loan amount for a conventional loan is $484,350. Loan amounts above $484,350 would be considered either super-conforming or jumbo and may have a different set of underwriting standards.
Conventional loans can be obtained in different terms, or repayment periods, known as amortization schedules. The most commonly offered terms are 30 year fixed, 20 year fixed, 15 year fixed and 10 year fixed, along with various ARM’s (adjustable rate mortgage). Recently, however, many lenders have allowed borrowers to “name” their term and will allow just about any amortization schedule.
Conventional loan rates can vary based on several factors, most notably, property type, property use, credit score and down payment, among others. For example, loans for investment properties will demand a higher interest rate than loan for primary residences or second homes. Additionally, loans that do not have 20% down payment or equity in the home will require mortgage insurance. Borrowers can often choose a lower interest rate on the loan and pay the mortgage insurance as part of their loan payment, or accept a higher interest and allow the lender to pay the mortgage insurance for them.
When purchasing a new home, a conventional loan will be best suited for borrowers that are looking for loan amounts that are $484,350 and below, have average credit scores at minimum, do not have a military background (VA loan eligibility) or rural/acreage properties (USDA loan eligibility).
In a refinance scenario, a conventional loan would also be suited for borrowers that are seeking loan amounts that are $484,350 and below, have average credit scores at minimum, are not seeking cash out of their home in excess of 85% loan-to-value, do not have a military background (VA loan eligibility) or rural/acreage properties (USDA loan eligibility).
The type of loan that is best for a borrower will be dependent on these factors and more. It is important to discuss the various types of loans with your Loan Originator to insure you are making the best decision for you and your family.
Looking for a conventional loan for a home purchase or to refinance? Fill out the form and we will be back in touch to discuss your options.
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