Conventional Loans

Most individuals beginning their home search do not fully understand the difference between the various loan options that are available to them when purchasing a new home, but finding the right option can save you thousands of dollars. The most traditional loan type is known as a Conventional Loan. This type of loan is not federally insured through government organizations such as FHA, VA, or USDA.

The guidelines for conventional loans are set by the publicly held enterprises known as Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation). Conventional loans in the United States make up about 35 to 50 % of all loans purchased (depending on market conditions).  

There are several types of loans that fall into the conventional loan category.  A conventional loan can be fixed or adjustable and usually requires between a 5 to 20% down payment depending on the value of the home, the applicant’s credit score and debt-to-income ratio requirements.

In addition, conventional loans can be used to finance a wide variety of home values. A conventional loan that exceeds the limits set by Fannie Mae and Freddie Mac is considered a non-conforming conventional loan, while a conventional loan that is set at or below the limit is considered to be a conforming conventional loan.  

Conforming conventional loans are an attractive option for many borrowers because they have lower interest rates and are normally more affordable than other loan options. 

Non-conforming conventional loans, also known as Jumbo loans, are used to finance homes with a higher value and typically have higher interest rates and may carry additional upfront fees and insurance requirements. 

The conventional loan limits differ county-to-county and range from $417,000 to $729,750. To see the loan limit in your county please contact us at Mortgage Team 1 at (251) 650–0805.  

If a conventional loan sounds like the right option for your home purchase, there are several things that we look at when determining whether or not your application will be approved.  

1.  Your income and monthly expenses. Standard debt-to-income ratios are 28/36 for Conventional Loans (monthly housing costs must be 28% or less of total monthly income and monthly housing costs plus all other debt can not exceed 36% of total monthly income). These ratios may be exceeded with compensation factors. 

2.  Your credit history (this is important, but convention loan credit standards are flexible). A FICO score of 620 or above is very helpful in obtaining finance approval. 

3.  Your overall pattern can also be evaluated in comparason to individual problems you may have had. 

After you qualify for a conventional loan, there are several factors that determine your interest rate.  To see how much you qualify for and what your conventional interest rate will be, please click here for a free quote.