Facts About the Conventional Home Loan
Written by: Martina Hargrove
|
|
A lending agreement that isn't financially backed by either the Federal Housing Administration (FHA), or the Veteran's Administration (VA) may fall into the rather broad category known as the conventional home loan. This type of loan is used to purchase or refinance homes with either first or second mortgages.
The term conventional home loan may also be used to refer to one that's secured by a financial entity who is sponsored by the federal government, such as through Fannie Mae and Freddie Mac, which are two of the largest mortgage trading companies in the United States. Neither Fannie Mae nor Freddie Mac actually approve or disapprove one for a loan the way a bank does, but instead operate by buying and then selling mortgages.
Through Fannie Mae, the current limits on a conventional home loan for a first mortgage on a single-family home is $417,000 in the continental U.S. For a second mortgage, their guidelines indicate that the maximum original principal balance limit is $208,500. Also, those borrowers living outside of the contiguous U.S. states, such as in Alaska, Hawaii, Guam, or the Virgin Islands, may qualify for higher loan limits.
Besides the common loans that are often used, such as fixed rate mortgages, adjustable rate, or balloon loans, these larger lenders also have various types of special loan programs in place for borrowers. Reverse mortgages, home improvement loans, low or no down payment loans, and community lending programs are some of the different types of lending structures to apply for.
To help make the decision on the best type of conventional home loan for your individual circumstances, consider the following:
- Your current financial status
- Your expected financial status in the future
- How well you would be able to handle fluctuating mortgage payments
- How long you plan on living in your new home
Remember that a fixed rate mortgage loan may save a decent amount of money in interest paid over the life of the loan, which is usually 15 or 30 years. However, the actual monthly payments will be considerably higher with a fixed rate mortgage. With an adjustable interest rate mortgage, the monthly payments may be lower, but if the interest rate changes, which it inevitably will, your minimum payments could be much higher.
There are also larger transactions known as jumbo loans, which are said to be nonconforming as they fall outside the limits or qualifications of both Freddie Mac and Fannie Mae. Still considered to be a conventional home loan, jumbo loans usually will come with a higher interest rate, as well as added underwriting requirements, which are the methods used to ascertain whether or not a borrower qualifies for the loan.
Some of the factors that lenders use to determine whether or not you will be approved include what type of conforming loan you are interested in, how much money you will have to use for closing the mortgage, and both your credit and employment histories. Other criteria, such as the location of your future property, as well as the type of dwelling you plan on purchasing or building, will also be taken into consideration by the lender when applying for a conventional home loan.
