The most dominant mortgage loans in today's market are known as a conforming loans and these loans follow the guidelines set by Fannie Mae and Freddie Mac .
A conforming loan is described as a loan securing a single-family residence with a value of $417,000 or less. However, in areas such as Alaska and Hawaii, the conforming mortgage limit rises to $625,000.
Conventional loans have their own set of minimum guidelines. Borrowers must have a down payment of at least 5% of the purchase price. Borrowers must have credit scores no lower than 620. With that being said, scores lower than 740 are going to be subject to additional fees and rate increases.
Conventional loans with an amount higher than $417,000 are called non-conforming or jumbo loans.
Conventional loan terms are usually 15 or 30 years but some lenders will also offer 10, 20 or 25 year terms. In most cases, the shorter then term, the lower the interest rate.
Variable or adjustable rates are also available on conventional loans. Usually the interest rate is fixed for 3, 5 or 7 years. After the fixed-rate period, the interest rate can change.
These loans are subject to private mortgage insurance(PMI).
Target customer for conventional mortgage loan: excellent credit, has at least 5% down payment
Conventional home mortgage loans are mostly used in the country. Conventional loans are issued by the private lenders such as the banks, credit unions, thrift institutions etc. But, these loans are not guaranteed by the federal authority. These loans can be of fixed rate or adjustable rate type. There are two major types of conventional loans – conforming loans and non- conforming loans. Conforming loans follow the guidelines set forth by Freddie Mac and Fannie Mae. For a single-family home, you are allowed to conforming loan limit of $41700. However, for some high-cost locations, this limit is much higher. For non-conforming loans, no such limit is there.
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