Conventional loans are a type of mortgage used in the private lending market. This kind of loan is not backed by public government agencies. A company may be more flexible in the terms and approval process for a conventional loan. For this reason, you may be able to get a more competitive rate. Professional Mortgage Solutions is here to support Rego Park, NY homebuyers with their conventional loan needs. Here is more information on this great mortgage program.
The Ins and Outs of Conventional Loans
Nonconventional loans are insured by various agencies like the Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA), or the U.S. Department of Agriculture (USDA). In contrast, conventional loans will be backed by a private mortgage insurance program or by the lender. A bank providing a conventional loan must carefully assess their risk in the approval process. They may ask for a higher down payment to secure their loan. However, conventional loans are quite common and come with many benefits:
- You can negotiate a fixed or adjustable-rate mortgage, and ask for flexible financing rates.
- You will typically not be asked to pay for private mortgage insurance so long as you offer a 20% down payment.
- You can stretch the loan terms from 10 to 30 years to lower your monthly payments.
- The lender may have less stringent income requirements in the application.
- Your home may not be required to go through inspections that would be needed for a government mortgage program.
- You may be able to finance a higher-value home that does not conform to government mortgage limits.
Conforming and Nonconforming Loans
There are differing structures with conventional mortgages. These are known as conforming and nonconforming. Government-sponsored entities (GSEs) like Fannie Mae and Freddie Mac will purchase conforming conventional loans and resell them on the secondary market. These GSEs set maximum loan limits—these are the conforming loan ceilings. The thresholds will vary by county across the United States. Nonconforming loans, also called “jumbo loans,” are mortgages that exceed the limit in a given county. In some situations, lender will keep these loans on their books.
There are a few key differences between conforming and nonconforming conventional loans. Because of their size, nonconforming loans may be riskier for private lenders than conforming loans. For this reason, the loan may have a higher down payment requirement (20% or larger) and have very detailed approval requirements.