- Conventional/Conforming Mortgages:
A Conventional Mortgage is a mortgage that fits guidelines set forth by Fannie Mae (FNMA) and/or Freddie Mac (FHLMC). Conventional mortgages will allow a borrower to borrower up to 95% of the value of a home (with private mortgage insurance). If a borrower puts down 20% or more on a purchase (or has equity of 20% or more on a refinance) they will not be required to carry mortgage insurance on the new mortgage. Conventional mortgages rates are very sensitive to a borrowers credit score. The lower the credit score, the higher the pricing adjustments, the higher the interest rate.
Conventional loans are stricter about their debt-to-income guidelines than many goverment insured mortgages. They often require that the borrower have their own money for the down payment. A borrower who does not have their own funds for a down payment can get a gift. If the down payment is 20% or more of the purchase price, it can all be a gift. If a down payment is <20%, at least 5% of the borrowers own funds must be used in the transaction. Additionally, conventional loans will often require that the borrower has a couple months of mortgage payments (or reserves) left in the bank after they close.
When should a borrower consider a Conventional Mortgage?
- Borrower has good credit
- Borrower has 20%+ down payment/equity in the property
- Borrower has 5% of the purchase price of their own money for a down payment.