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A Conventional home loan is a mortgage that is not guaranteed (backed or insured) by the US federal government. Conventional Home Loans (also known as Conforming Loans) are mortgage loans made by local banks, and held on their portfolio until paid or sold. Fannie Mae and Freddie Mac purchase these mortgages that meet conventional loans limits, down payment requirements, debt to income ratios and other underwriting guidelines. Both Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) are government sponsored entities created by congress to purchase conforming mortgage loans and resell them on the secondary market.
Like all home loans, Conventional loans have some advantages and disadvantages. Conventional loans generally require a larger down when compared to FHA loans, VA or USDA Loans. Currently in New York, you are required to put down a minimum of 5% in order to obtain a Conventional loan. Please note, this down payment requirement only applies to owner occupied primary homes. If you are looking for a second home or investment property Conventional loan , you can expect this down payment requirement to be 20% or more. One benefit is Conventional loans do not have the up- front mortgage insurance premium (MIP) requirement like all Government home loan programs. All Government loans require this, and the fee can range from 1-2% of your loan amount. However, conventional loans may require monthly private mortgage insurance (PMI) for down payments under 20%.
Conventional Loan Mortgage Terms Conventional loans come with a verity of different mortgage payment terms available. Home buyers can pick Adjustable Rate Terms or Fixed Rate Terms. Adjustable Rate Conventional loans come in a 5 year, 7 year and 10 year terms. Fixed Rate Conventional loan terms include 10 year, 15 year, 20 year, 25 year and 30 year term.
So what is the best mortgage option for you ? Well that depends on how much money you have available for a down payment. If you have 5% or more to put down on your new home, a Conventional home Loan should certainly be looked at closely. If money is tight for a down payment, or you want to conserve your saving, the Government home loan mortgage options like FHA, VA or USDA, maybe worth a closer look. Contact us at 877-747-4767 and we would be happy to review all these home loan options with you!