One of the most popular loan options is conventional loans. Conventional loans are residential home loans offered by non-government sponsored lenders. A conventional loan can either be considered conforming or non-conforming. In order to be a conforming loan, the loan has to meet the loan limits that are established by the Federal Housing Financing Agency and can be sold to Fannie Mae and Freddie Mac as long as they adhere to the guidelines set. If the loan exceeds these established loan limit amounts set and/or does not adhere to the guidelines set, the loan would be considered non-conforming. All of these loans may have either a fixed or adjustable rate.
While many think that a 20% down payment is required for all conventional loans, this is a common way to exclude the requirement of Private Mortgage Insurance that is included in monthly mortgage payments. Mortgage Insurance protects the lender. There are also split or combo loan options to eliminate PMI requirements, though second liens generally result in higher interest rates.
Interest rates are based on risk level factors such as credit score, debt-to-income ratio, loan- to-value, loan amount and at times intended “purpose” of loan transaction. Conventional loans offer programs with low down payments as low as 3% for primary residences (certain requirements apply for the 3% down payment).
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