Conventional Loans
Conventional loans include:
Fixed Rate Mortgages
Conventional Loans
Jumbo Mortgages
Balloon Mortgages
Conventional loans encompass all mortgages
that are not insured by the Federal Housing Administration (FHA)
or guaranteed by the Veterans Administration (VA).
Conventional loans cover a wide variety of
mortgage types that fall into three major categories: conforming,
jumbo, and non-conforming.
Conforming loans are mortgages
meeting the approval guidelines of the two largest purchasers of
home loans in the country: the Federal National Mortgage
Association (FNMA, or Fannie Mae) or Federal Home Loan Mortgage
Corporation (FHLMC or Freddie Mac).
Fannie Mae and Freddie Mac set the
standards for conventional mortgage loans. These agencies do not
make mortgage loans. Instead, they create a market for mortgage
lenders to sell loans thus freeing up the capital to lend to
other borrowers.
The mortgage loan criteria set by these
agencies includes the basic eligibility model for approval. These
models cover such areas:
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- credit history
- employment stability & income
- adequacy of funds to close
- the property purchased or refinanced
- the type of loan requested
It is important to note that there are many
conventional loans that use these guidelines although the loans
will not be sold to Fannie Mae or Freddie Mac. The most notable
variations are Jumbo Mortgages
and Adjustable Rate Mortgages or (ARM's).
Most ARM's use agency credit guidelines for
the approval criteria. However, many ARM's have features that are
outside the eligibility requirements for Fannie Mae or Freddie
Mac (examples include higher loan amounts or loan-to-values).
Jumbo loans, as you might expect,
are loans that are too large to meet the eligibility requirements
of either Fannie Mae or Freddie Mac. Currently any loan over $333,700
is considered a jumbo loan (as of December 2003). Generally jumbo loans have the same
basic approval requirements as conforming loans.
Non-conforming loans are mortgages
that do not meet the general approval guidelines of Fannie Mae or
Freddie Mac. Typical issues include credit profiles, employment
profiles, or property considerations.
When shopping for a new mortgage, the type
of conventional loan will have an impact on the interest rate
that is quoted. Be sure you get enough information to accurately
determine the mortgage that is best for you.
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