Conventional Conforming Loans
General Information:
Conventional conforming loans are mortgage loans that meet the guidelines of the Federal National Mortgage Association called Fannie Mae (also known as FNMA) or Federal Home Loan Mortgage Corporation called Freddie Mac (also known as FHLMC). These two publicly traded companies were chartered by the US Congress to provide liquidity for home loans. Fannie Mae was chartered in 1938 (for more history see http://www.alliemae.org/historyoffanniemae.htmland). Freddie Mac was chartered in 1970 (for more history see (http://www.alliemae.org/freddiemac.html).
Both of these companies buy or guarantee loans for virtually all major mortgage companies around the nation. By doing so, these mortgages can be grouped up and receive the highest securities rating AAA by the rating agencies and sold as bonds all over the world. (Note: this is a very simplified explanation). What does this mean for you? If you qualify for a conforming loan, you will receive the best interest rate available for the loan product being offered in the market. FHA and VA loans also offer this rate advantage to you for government loans.
The maximum loan amount for a single family home in most of the country is $417,000 (Alaska, Guam, US Virgin Islands and Hawaii are the limit is $625,500) for a single family residence. You must have 20% down payment or equity for these loans unless you have Private Mortgage Insurance (PMI) to insure that you will make the payment or a second mortgage loan at a much higher interest rate (if available). In these cases the down payment is as low as 5%. Some community home buyers programs offered by Fannie Mae and Freddie Mac offer 3% down payment. You will also have to pay closing cost and any up front PMI (as required). Conforming loans come in fixed rate and adjustable rate mortgage (ARM) verities. ARM’s will be dealt in the ARM loan section.
Advantages:
- Because of guarantees given by Fannie Mae and Freddie Mac to lenders on these loans, your interest rate will be given a Triple A rating and rate of return giving by such. In other words you will have a low interest rate.
- Low down payment is available.
- Probably one of the easiest and fastest loans to get.
- Great for loans under $417,000 loan amounts.
- You can get a gift from a relative, but if the gift is less than 20% you will still have to have at least 5% of your own money to close.
Disadvantages:
- Down Payments under 20% will require Private Mortgage Insurance (PMI) or a second lien loan at a much higher interest rate.
- Not generally as good for smaller loan amounts within FHA limits.
- The loan is not assumable under any circumstances.
- Lenders now use your credit grade to determine your interest rate. FICO credit scores under 680 may have to pay a higher interest rate or discount points.
When You Should Consider this Loan?
- When you have good credit scores and at least 5% down payment plus closing costs.
- When the loan amount is under $417,000 and above FHA limits.
- If you have 20% equity and/or down payment you should consider this loan over any over loan up to $417,000.
