Conventional Loans

What are Conventional Loans?

Conventional Loans are mortgage loans that are not insured by the government (like FHA, VA, USDA Loans), but they typically meet the lending guidelines that have been set by Fannie Mae or Freddie Mac. Typically, conventional loans have better rates, terms and/or lower fees than other types of loans. However, conventional loans typically require a borrower to have good-to-excellent credit, reasonable amounts of monthly debt obligations, a down payment of 3-20% and reliable monthly income. Conventional loans are ideal for borrowers with excellent credit and at least a 5% down payment.

Most Common Types of Conventional Loans

Fixed Rate Mortgages: Your rate and payment never change.

• 30 Year Fixed Loan
  Benefits: Lowest fixed monthly payments
• 20 Year Fixed Loan
  Benefits: Low fixed monthly payments
• 15 Year Fixed Loan
  Benefits: Lower rate than the 15 or 20 Year Fixed; Pay less interest and pay your home off more quickly.
• 10 Year Fixed Loan
  Benefits: Lower rate; Pay off your loan and build equity faster.

Adjustable Rate Mortgages: After the initial period your interest rate can change once a year.

• 5/1 ARM
  Fixed Rate for 5 Years, Adjustable Rate for the remaining 25 years
• 7/1 ARM
  Fixed Rate for 7 Years, Adjustable Rate for the remaining 23 years
• 10/1 ARM
  Fixed Rate for 10 Years, Adjustable Rate for the remaining 20 years

What are the Conventional Down Payment Requirements?

For Purchase transactions Conventional Loans require the home-buyer to put down at least 3% - 20% of the purchase price of the home. For a Refinance transaction, most lenders require at least 10% equity in the property. If you don't have enough equity to qualify for a conventional refinance - even if you owe more than your home is worth - you might be eligible for a HARP 2.0 Loan.

What types of property are eligible?

Most conventional loan programs allow you to purchase single-family homes, warrantable condos, High Rise condos, planned unit developments, manufactured homes, and 1-4 family residences. A conventional loan can also be used to finance a primary residence, second home and investment property.