Conventional Loans

Mortgages can be either government-backed or conventional. Conventional loan is not made by a government entity nor insured by a government entity. They are also called as non-GSE loans. Conventional loans typically cost less than government-backed loans but can be more difficult to get. A conventional loan is a perfect mortgage for home buyers that have very good to excellent credit. Conventional mortgages usually require a minimum down payment of 5% to 20%, while some government programs require smaller, or in some cases, zero down payment.

Conventional home loans include:

  • Conforming loans
  • Non-conforming loans
  • Jumbo loans
  • Sub-prime loans

Conforming loans have maximum loan amounts that are set by the government. Other rules for conforming loans are set by Fannie Mae or Freddie Mac. These two government-sponsored enterprises (GSEs) buy mortgages from lenders and sell them to investors.

Non-conforming loans are less standardized. Eligibility, pricing, and features can vary widely by lender, so it's very important to get the home work done and compare several offers before any commitment.

Non-conforming loans that are larger than loan limits set by the GSEs are often referred to as "jumbo" mortgages. For example, if you are buying a home in a county in which the conforming loan limit is $417,000, and you are taking out a single mortgage for $700,000, you'll require a jumbo loan.

Conventional home loan that carries an interest rate and fee higher than the rates of prime mortgages are called sub-prime mortgage loan. It is granted to borrowers with impaired credit history. If your credit score is low, you may have to apply for a subprime mortgage loan.

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