A Conventional Loan is a mortgage loan that “is not” backed or insured by a government agency. For example FHA, VA and USDA are “not” Conventional Loans because they are government insured.
When a Conventional Loan is “Conforming” it means that the loan conforms to the guidelines established by Fannie Mae and Freddie Mac.
Fannie and Freddie are called GSEs. That stands for Government Sponsored Enterprise. They set the guidelines under which Conforming Loans are underwritten. They also buy these Loans from the Lenders and sell them to Investors. So if you’ve ever wondered where mortgage money comes from….well it comes from Fannie Mae and Freddie Mac.
Conforming Loans can have down payments as little as 3%. And check this out: the 3% down payment can be money gifted to you by family. And they will allow the Seller to pay some or all of your closing costs, depending on your down payment %.
They typically require higher credit scores than the Government insured Loans. But in many cases they will require less documentation which can make for a quicker loan process. You can get fixed or adjustable interest rates and 30, 25, 20, 15 and 10 year terms.
These Conforming Loans are limited to a maximum loan amount of $453,100 or less in Delaware. It may be higher in other states. The rates on Conforming Loans are typically a bit higher than Government insured loans, but they carry on very strong advantage.
Conforming Loans do not require Mortgage Insurance when the loan is 80% or less of the Home’s value. So if you put 20% down on a Conforming Loan….you will not have MI. Even if you purchase a home with only 3% or 5% down, once your loan represents 80% or less of the home’s value, you can request to have the MI removed from your payment.
One huge plus is that Conforming Loans can be used to purchase or refinance any occupancy type. Government insured Loans like FHA, VA and USDA can ONLY be used to buy a primary residence.
Please take some time to learn more about the Conforming Loan program and its many benefits right here on our site. If you have immediate questions, please contact us today.
Low Down Payment:
You can purchase a home with as little as 3% down! And that 3% can be a gift from your family. How cool is that?
Any Occupancy Type:
This is perhaps the greatest advantage of Conforming Loans. This loan can be used to purchase a primary home, a secondary/vacation home or an investment/rental property. Government insured loans can only be used to buy a primary residence.
Flexible Mortgage Insurance Options:
If you are able to put 20% down on a home purchase, you will not have to pay Mortgage Insurance. But if you have less money to work with for down payment, the Conforming Loan offers 2 great advantages. The first is that you can eventually eliminate the monthly MI payment once your loan balance is less than 80% of your home’s value. But here is another excellent option. You can take a slightly higher interest rate and the Lender will self insure the MI…thereby eliminating an MI payment. And even though your interest rate is higher, by removing the monthly MI your total payment will be lower than the previous option.
No Pre Payment Penalty:
Conforming Loans do not carry prepay penalties. So you have the flexibility to sell or refinance your home at any time without fear of being hit with some crazy fee for paying your loan off early.
Quicker Loan Process:
Because the Conforming Loans do require higher credit scores, often times there is less documentation required in getting your loan Approved and cleared to go to settlement. For example in some cases, the appraisal can be waived. You heard that correctly…the appraisal can be waived in certain scenarios. Typically this can happen with higher down payments.
Competitive Interest Rates and Terms:
Conforming Loans have low interest rates and offer both fixed rates and adjustable rates. A popular adjustable rate is the 7/1 ARM. The interest rate is lower than normal and it is fixed for 7 years. After 7 years it converts to an annually adjusting interest rate. Also Conforming Loans offer more term options….30, 25, 20, 15 and 10 year options.
Roll In Closing Costs:
The Conforming Loan will allow the Seller to actually agree to pay some or all of your closing costs. Typically closing costs will be 4.5% to 5% of the sale price. If you put 3 or 5% down, the Seller can contribute 3% of the Sale Price to pay your closing costs. With 10% or more down, the Seller can pay up to 6% of the Sale Price towards your closings.
Here are some of the basic guidelines for qualifying:
9 East Loockerman Street, Suite 207, Dover, DE 19901
302-674-5540
larry@delawaremortgagerates.org
DE Licensed Mortgage Broker NMLS# 205695