Conventional loans are mortgage loans offered by non-government sponsored lenders. A conventional, or conforming, mortgage adheres to the guidelines set by Fannie Mae and Freddie Mac. It may have either a fixed or adjustable rate.
While many think that a 20% down payment is required for all conventional loans, many lenders now offer low down payment options.
Advantages of a Conventional Loan:
Home Ready (Fannie Mae) & Home Possible (Freddie Mac)
- 97% Financing (3% down payment)
- Discounted Monthly Mortgage Insurance (PMI)
- Income Restricted to 80% Area Medium Income (use look-up tool on-line)
- Qualifying income used (benefit: can use only the borrower on the loan)
- FICO Scores down to 620
- Lower Interest Rates than Conventional loans
- No Pre-payment Penalty
- Homebuyer Education Required
HomeReady Mortgage Loans - Fannie Mae
A HomeReady mortgage loan is a type of mortgage program offered by Fannie Mae, a government-sponsored enterprise in the United States. The program is designed to help low-to-moderate-income borrowers with limited down payment funds or lower credit scores to purchase or refinance a home. Mike Stoy at Epic Mortgage has the expertise to help you through this program.
Here are some key features of a HomeReady mortgage loan:
- Low down payment: HomeReady allows borrowers to put down as little as 3% of the purchase price or appraised value of the home. The down payment can come from various sources, including personal funds, grants, gifts, or even eligible community seconds (a second mortgage provided by a nonprofit or state or local government agency).
- Flexible income eligibility: HomeReady takes into account the income of all individuals living in the household, regardless of whether they are borrowers or not. This can be helpful for multi-generational households or situations where extended family members contribute to the household income.
- Reduced mortgage insurance: Borrowers with a HomeReady loan may qualify for lower private mortgage insurance (PMI) premiums compared to traditional loans. PMI is typically required when a borrower puts down less than 20% on a conventional mortgage.
- Education requirements: Borrowers are required to complete an online homebuyer education course to help them make informed decisions about homeownership, budgeting, and the responsibilities of owning a home.
- Flexible sources of funds: HomeReady allows for a broader range of funding sources, including gifts, grants, and community assistance programs, to help with the down payment and closing costs.
It's important to note that specific eligibility requirements, terms, and conditions can vary, so it's best to consult with a lender or mortgage professional, like Mike Stoy, to understand the current guidelines and determine if you qualify for a HomeReady mortgage loan.
Home Possible Mortgage Loan - Freddie Mac
A Home Possible mortgage loan is a mortgage program offered by Freddie Mac, another government-sponsored enterprise in the United States. Similar to Fannie Mae's HomeReady program, Home Possible is designed to assist low-to-moderate-income borrowers in purchasing or refinancing a home. Mike Stoy can help you figure out which route is best to take and guide you seamlessly through the process.
Here are some key features of a Home Possible mortgage loan:
- Low down payment: Home Possible allows borrowers to make a down payment as low as 3% of the purchase price or appraised value of the home. The down payment can come from personal funds, gifts, grants, or eligible community seconds.
- Flexible income eligibility: Home Possible takes into consideration the income of all individuals living in the household, regardless of whether they are borrowers or not. This can be beneficial for households with multiple income earners or situations where extended family members contribute to the household income.
- Reduced mortgage insurance: Borrowers who qualify for a Home Possible loan may be eligible for lower private mortgage insurance (PMI) premiums compared to traditional loans. PMI is typically required when the down payment is less than 20% on a conventional mortgage.
- Homeownership education: Borrowers are required to complete an approved homeownership education course, which provides valuable information and guidance on the home buying process, financial management, and the responsibilities of homeownership.
- Flexibility for property types: Home Possible loans can be used to finance various types of properties, including single-family homes, condominiums, and even 2- to 4-unit properties, allowing borrowers to potentially generate rental income.
As with any mortgage program, specific eligibility requirements and terms can vary, so it's advisable to consult with a lender or mortgage professional, like Mike Stoy at Epic Mortgage, to get detailed information on the current guidelines and determine if you qualify for a Home Possible mortgage loan.
A conventional mortgage loan is a type of home loan that is not insured or guaranteed by a government agency such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). It is considered a private loan offered by traditional lending institutions, such as banks, credit unions, or mortgage companies. With over 30 years of experience, Mike Stoy can help you throughout the process with expertise and consultation.
Here are some key characteristics and features of conventional mortgage loans:
- Loan Requirements: Conventional loans generally have stricter qualification criteria compared to government-backed loans. Lenders typically look at factors such as credit score, income stability, employment history, debt-to-income ratio, and down payment amount to determine eligibility.
- Down Payment: Conventional loans typically require a higher down payment compared to government-backed loans. While it can vary based on factors such as credit score and lender requirements, a down payment of at least 5% to 20% of the home's purchase price is common. However, in some cases, it may be possible to obtain a conventional loan with a down payment as low as 3% through certain programs.
- Private Mortgage Insurance (PMI): If the down payment is less than 20% of the home's purchase price, the borrower usually needs to pay for private mortgage insurance. PMI protects the lender in case of default and is an additional cost added to the monthly mortgage payment. Once the loan balance reaches 80% to 78% of the home's original value, PMI can often be canceled.
- Loan Limits: Conventional loans typically have higher loan limits compared to government-backed loans. The specific loan limits depend on factors such as location and property type and are determined by loan agencies such as Fannie Mae and Freddie Mac.
- Interest Rates: The interest rates on conventional mortgage loans can vary depending on market conditions, the borrower's creditworthiness, and other factors. Generally, borrowers with stronger credit scores and lower debt-to-income ratios can secure more favorable interest rates.
- Loan Terms: Conventional loans offer various term options, including 30-year and 15-year fixed-rate mortgages, as well as adjustable-rate mortgages (ARMs). Fixed-rate mortgages have a consistent interest rate throughout the loan term, while ARMs typically have a fixed rate for an initial period and then adjust periodically based on market conditions.
- Flexibility: Conventional loans offer more flexibility in terms of property types and uses. They can be used to finance primary residences, second homes, and investment properties, as well as different property types like single-family homes, condominiums, and multi-unit properties.
It's important to note that while conventional loans do not have the same government backing as FHA or VA loans, they are still subject to various regulations and guidelines set by loan agencies, investors, and underwriting standards. It's advisable to consult with a mortgage professional or lender, like Mike Stoy at Epic Mortgage, to understand the specific requirements and options available for conventional mortgage loans.
