This week we are going to discuss a loan that is much more common than the government-backed financing options (FHA and VA) that we learned about on my prior blog posts; it’s called a CONVENTIONAL loan. It is by far, one of the most popular and common home financing options. I’m sure that even before you began searching for a home and looking into home loans, this was one that you had already heard of, even if you weren’t sure of exactly what it entailed. There are few loans that fall under the conventional loan title and below we will touch on all them.

First, what is a conventional loan? Simply, a conventional loan is a loan that is NOT insured or guaranteed by the federal government, they are backed instead by private lenders.

About half of these loans are considered conforming conventional loans and this means that the the loan follows the guidelines set by Fannie Mae and Freddie Mac (government-sponsored entities that purchase mortgages from lenders and sell them to investors) and their biggest and strictest rule is their baseline loan limit, meaning that you cannot go over that amount for your home loan in your area. Feel free to ask me what the baseline loan limit is in our area!

What if you need a bigger loan allowance? You can still get one! Loans that do go over the baseline limit, are called non-conforming conventional or a jumbo loan. These loans are not purchased by Freddie Mac or Fannie Mae an are instead backed by private lenders or institutions.

Conventional loans held by mortgage lenders on their own books are called “portfolio” loans. Because lenders can set their own guidelines for these loans and do not sell to investors, they can have features that other mortgages do not. For example, a lender might allow you, the borrower, to use investments like stocks and bonds as security for a mortgage for which one would not otherwise qualify.

Conventional home loans for borrowers with lower credit scores are called sub-prime mortgages. They typically come with higher interest rates and fees. Though the government has special rules covering them, they are not government-backed.

Some benefits that a conventional loan offers:

*Low-interest rates

*Faster loan processing

*Diverse down payment options, starting as low as 3% of the home’s sale price

*Various term lengths on a fixed-rate mortgage, ranging from 10 to 30 years

*Reduced or non-existent (with a 20% or more down payment) private mortgage insurance (PMI)** There are new products currently being offered that only require a 10% down payment to avoid PMI. Be sure to ask your lender of choice if this is something they would recommend for your situation.

If you have good credit and savings, this loan may be right for you! Get in touch with me today and we can discuss how we together can move forward with the purchase of your home!


Kristi Harden

*If you have any questions, please get in contact with me, Kristi Harden, today at 951.704.6370 or