Conventional Home Loans
What is a Conventional Home Loan?
A Conventional Home Loan is essentially a mortgage that is not guaranteed or insured by the federal government. While these loans are not government-backed, they still follow the guidelines set forth by government sponsored enterprises such as Fannie Mae and Freddie Mac. Conventional Loans involve adjustable rate and fixed rate loans which offer varying interest rate structures and payment terms.
There are two types of conventional loans “conforming” and “non-conforming”. Conforming loans follow guidelines set forth by Fannie and Freddie while non-conforming do not, but are still considered conventional.
Types of Conventional Loan Programs
- Fixed rate loans – Fixed rate loans are the most common among conventional loan programs. A fixed rate loan has an interest rate and payment that remains the same for the life of a loan.
- Adjustable rate loans – An Adjustable Rate Loan (ARM) has an initial fixed interest rate that remains the same for a period of time (typically 3, 5, 7, or 10 years). After that period of time, the initial interest rate adjusts and will continue to change.
Conventional Loan Requirements
- Often require a higher credit score than government-backed loans and unlike FHA or VA type of loan programs
- Require a down payment of 5-20%, depending on the borrower’s credit score.
- Typically calls for a lower debt to income ratio, which can vary between 33 and 50 percent based on many compensating factors.
- Minimum fico score of 660
What types of properties apply?
- 1-4 Units
- Planned unit developments
- Owner Occupied
- Second Homes
- Investment Properties
Maximum loan amount
The maximum loan amount for a conventional conforming loan will vary based on the county. For example, counties like Los Angeles allow for the maximum amount of $625,500 whereas other counties in California allow for the lowest maximum amount of $417,000. To find what the currently limit is in your county, visit the Fannie Mae site directly at https://www.efanniemae.com/sf/refmaterials/loanlimits/