Any uninsured or government-guaranteed mortgage loan is essentially considered a conventional mortgage. Lenders do not have guarantees carried by conventional mortgages in the case of a borrower defaulting. Therefore, these types of loans usually demand higher down payments in the range of 5%-20%, feature lower debt-to-income ratios and possess stricter credit and income requirements than other loans.
Yet they can include a fixed rate or an adjustable rate. The ARM rate stays flat for a specified term before market-influenced fluctuation begins to occur. Standard repayment periods are 15 or 30 year terms, however some banks do offer shorter and longer repayment durations.
Conventional loans, which do not have any notable property or occupancy restrictions, can be classified as either conforming or non-conforming. Upon fitting the underwriting criteria established by Fannie Mae and Freddie Mac, a conventional mortgage is identified as conforming. If a loan doesn’t adhere to the principles set by Fannie Mae and Freddie Mac, then it is considered non-conforming.
The loan amount is the prime detail that influences the determination of a conforming loan. Typically, loans that are below $417,000 are categorized as conforming. Loans greater than $417,000 generally are labeled as non-conforming, and can be referred to as “jumbo mortgages”. Interest rates regarding jumbo mortgages are likely to be higher due to their risk being greater.
Limits for conforming loans are loftier in parts of the United States where housing costs are more expensive (metropolitan areas also), and with $625,000 being the general “high-cost” area for a single-unit property.
Conventional loans can be extremely beneficial when utilized. Repayment conditions are far more advantageous for borrowers and interest rates are notably lower, plus these loans are processed quicker than others.
Borrowers are granted immediate equity in their homes, and they do not have to be concerned with private mortgage insurance if they make a down payment of 20%. Borrowers can cancel their existing mortgage insurance at 80% LTV. Closing costs and other various fees are reduced, plus they can be incorporated into the loan.
Finally, there is no pre-payment discipline under conventional loans if a borrower sells or refinances their home.
Team Sunrise can happily help you in the exploration of conventional mortgages! Call us today at (941) 758-6303.