A conventional loan is a loan that is not insured by a government entity. This means any type of loan other than the FHA or VA loan programs is considered a conventional loan. Typically a conventional loan is secured by a down payment and paid off through monthly payments over the course of 15 to 30 years. However, the exact terms and conditions of each loan can vary considerably from one homebuyer to the next. Conventional loans require a down payment, with 20 percent being the recommended amount to avoid private mortgage penalties, and they also examine the buyer’s credit rating when determining approval and interest rates.
Conventional loans that follow the conditions and terms set forth by Fannie Mae and Freddie Mac, which put limits on the amount an individual should spend on a first mortgage, are called “conforming.” Those that do not follow these guidelines are “non-conforming.” Non-conforming loans are sometimes called jumbo or super-jumbo. Through 2011, the upper limit on a single-family home in the continental United States is $417,000. When a homebuyer borrows up to $417,000, Fannie Mae or Freddie Mac will purchase the loan from the lender, reducing the risk for the lender. The amount increases to as much as $729,750 in certain areas of the country with high property values. Loans above this amount are called “Jumbo” or “Super Jumbo,” and they typically carry higher interest rates because they pose more of a risk to the lender. Because of the high property values in many areas of California, home buyers often need these jumbo loans to afford an typical home within a metropolitan area.
If you are in the market for a conforming, jumbo or super jumbo conventional loan, we can help. We offer all three loan products with competitive rates and low closing costs giving our customers great flexibility when they need to borrow money for a home purchase. Call one of our Home Loan Specialists today to learn current rates and start the mortgage application process today!