Conventional loans are a popular choice for homebuyers seeking flexible and competitive financing options. Conventional loans are not insured nor guaranteed by a government entity or agency, such as FHA or VA.
However most conventional loans conform to guidelines set by government-sponsored entities (GSEs), such as Freddie Mac and Fannie Mae, so that they may be sold in the secondary market, it is considered a conforming loan.
Conventional loans may be conforming loans or nonconforming loans.
Traditional conventional loans are typically long-term, fully amortizing, fixed-rate real estate loams.
The loan-to-value ratio (LTV) refers to the amount of money borrowed (the loan amount of a first mortgage) compared to the value of the property.
The lender will always use the lower of the appraised value or the sale price to protect its interest. The lower the LTV, the higher the borrower's down payment, which means the loan is more secure.
Loans with an LTV higher than 80% are possible because of PMI and secondary financing. Most conventional loans over 80%, as well as all FHA and VA loans, require the property to be owner-occupied.
Up to 95% LTV loan requires owner occupancy of the property and the down payment must be made from personal cash reserves and/or allowable gift funds.
A 97% LTV Conventional Loan is offered under "Home Ready (FNMA)" and "Home Possible (FHLMC)" with more relaxed underwriting guidelines regarding sources of down payment, income, underwriting and credit standards. Borrowers utilizing these loan programs do not need to be first time homebuyers, but they must meet certain income limit requirements. (cf: External link)
Private Mortgage Insurance (PMI) is offered by private companies to insure a lender against default on a loan by a borrower where there is a loss of collateral value at the time of the default.
The insurer does not insure the entire loan amount, but rather the upper portion of the loan that exceeds the standard 80% LTV.
After the sale of the security, the proceeds may not be sufficient for the lender to reclaim all of the lender's losses from the principal balance, foreclosure, and other costs. The lender may be able to pursue a deficiency judgment against the borrower for any losses, depending on states statutes. This is referred to as recourse.
The traditional way insurers charge for PMI is with a one-time, non-refundable fee at closing and a recurring fee, called a renewal premium, added to the borrower's monthly mortgage payment. These charges are often referred to as PMI.
Some PMI insurers offer a one-time mortgage insurance premium with no real fee.
The Homeowners Protection Act of 1998 (HPA) (12 U.S.C 4901 et seq) requires lenders to automatically cancel PMI when a home has been paid down to 78% of its original value or has attained 22% equity based on the original value, assuming the borrower is not delinquent.
Secondary financing is when a buyer borrows money from another source to pay part of the purchase price or closing costs. When underwriting a loan that will have secondary financing, the primary lender will include that payment as part of the borrower's monthly housing expense and consider the total amount borrowed when determining the combined LTV.
Subordinate financing (debt financing in which the lender is not the first party due to be repaid by the borrower) can be more than simply a second mortgage. Borrowers may have additional junior liens, such as with a down payment assistance program or even a third or fourth mortgage. Secondary financing may be: Fully amortized/ Partially amortized or Interest only.
The Combined Loan-to Value (CLTV) is the percentage of the property value borrowed through a combination of more than one loan, such as first mortgage and a second mortgage home equity loan. The CLTV is calculated by adding all loan amounts and dividing by the home's appraised value or purchase price, whichever is lower.
At NVWM, LLC, we offer a variety of conventional mortgage products throughout Texas and Florida.
Please reach out to us at relation@nvwm.llc if you cannot find an answer to your question.
A conventional mortgage is a home loan that is not part of a specific government program. It typically has lower costs than FHA loans but may require a higher credit score and a larger down payment.
Conventional loans fall into two categories: conforming and non-conforming. Conforming loans meet specific guidelines set by Fannie Mae and Freddie Mac, while non-conforming loans do not, often due to loan size or other factors.
A conforming loan adheres to the guidelines set by Fannie Mae and Freddie Mac, including loan limits. In most counties, the maximum loan amount is $766,550, but it can go up to $1,149,825 in high-cost areas.
A jumbo loan is a type of non-conforming loan that exceeds the conforming loan limits. These loans typically require a higher credit score, a larger down payment, and stricter underwriting standards. Jumbo loans can range up to $1-3 million or more, depending on the lender.
To qualify, you typically need a good credit score, stable income, and a down payment. If your down payment is less than 20%, mortgage insurance is usually required.
Mortgage insurance protects the lender if you default on your loan. It’s required if your down payment is less than 20% of the home’s purchase price on a conventional loan.
Fannie Mae and Freddie Mac are government-sponsored enterprises that back most conventional mortgages in the U.S. They help keep mortgage rates affordable and ensure the availability of 30-year fixed-rate loans.
A fixed-rate mortgage has a constant interest rate for the life of the loan, providing predictable monthly payments. An ARM has an interest rate that may change periodically, which can result in varying monthly payments.
The amount you can borrow depends on the loan type and limits. Conforming loans are capped at $766,550 in most counties, while jumbo loans can go up to $1-3 million or more.
A credit score of 620 or higher is typically required for a conventional mortgage. However, higher scores may be needed for jumbo loans or to secure the best interest rates.
Yes, you can. However, if your down payment is less than 20%, you’ll likely need to pay for private mortgage insurance (PMI).
Conventional loans generally offer lower interest rates, no upfront mortgage insurance premiums (unlike FHA loans), and more flexible loan terms.
Yes, many conventional loans cater to first-time homebuyers, often with lower down payment options and special programs designed to make homeownership more accessible.
Lenders calculate your monthly payment based on the loan amount, interest rate, and loan term. Payments typically include principal, interest, taxes, and insurance (PITI).
A balloon loan has lower monthly payments for a set period, followed by a large “balloon” payment at the end of the term. It can be risky if you're unable to make the final payment or refinance the loan.
Yes, refinancing can help you lower your interest rate, shorten your loan term, or switch from an ARM to a fixed-rate mortgage. It’s a common option for homeowners looking to reduce their monthly payments.
Closing costs generally range from 2% to 5% of the loan amount and include fees for appraisal, title insurance, origination, and more. These costs can sometimes be rolled into the loan.
A conforming jumbo loan is a type of conventional loan for amounts higher than $766,550 but within the conforming loan limits for high-cost areas. These loans are available only in certain counties.
Non-conforming loans do not meet Fannie Mae and Freddie Mac guidelines. This category includes jumbo loans and loans with features that make them riskier, such as minimal documentation or interest-only payments.
A Loan Estimate is a document provided by lenders that outlines the terms of your mortgage, including interest rate, monthly payment, and closing costs. It allows you to compare offers from different lenders.
Yes, some lenders offer non-conforming loans for properties with unique features, such as large acreage, agricultural income, or difficult-to-appraise properties. These loans often require more stringent qualifications.
Yes, but self-employed borrowers may face stricter documentation requirements. Lenders typically require two years of tax returns and other documentation to verify income.
The closing process for a conventional loan typically takes 7 to 45 days, though this can vary based on factors like the lender’s processing speed and any issues with documentation. At NVWM, LLC we can close in 7 days.
Yes, as long as you meet the lender’s debt-to-income (DTI) ratio requirements and have a stable income source. Some programs offer flexibility for borrowers with lower income but strong credit.
Conventional loans are usually better for borrowers with good credit and a 20% down payment, while FHA loans are often preferred by those with lower credit scores or smaller down payments. Compare the total costs, including mortgage insurance, to decide which is best for you.
We use cookies to analyze website traffic and optimize your website experience. By accepting our use of cookies, your data will be aggregated with all other user data.