Conventional loans are mortgage loans offered by non-government sponsored lenders.
The structure type of the loans:
- Fixed Rate Loans
- Adjustable Rate Mortgages
- Balloon Mortgage
Conventional financing is offered by almost every lender and is available to borrowers who make a down payment of 5% of the sales price or more; except for special programs. There are loan limits on Fannie Mae or Freddie Mac loan programs. The loan limit is $417,000 nationwide; however, certain geographic areas have higher loan limits. The areas that allow higher loan limits are “High Balance” loans. These “High Balance” loan limits vary the from county to county. The Washington DC and Baltimore areas are in the High Balance areas. The High Balance loan limit for the Washington DC area is $625,500 and the Baltimore area is $517,500. The High Balance loan limits are up for change each year based upon various economic factors.
Once the loan amount exceeds the High Balance limit, the loans are referred to as Jumbo or Non-conforming and have higher interest rates and have more restrictive guidelines.
Private Mortgage Insurance (PMI) is required on a conventional loan if the first trust loan to value (LTV) is greater than 80% of sales price.
Generally, lenders require that your proposed mortgage payment (including taxes and insurance) not exceed 28% of your income. In addition, your total monthly debts, when combined with your proposed mortgage payment, should not exceed 36% of your monthly income (the ratios are guidelines and the strength of your loan might allow these ratios to expand).
There are many varieties of conventional loans available; 30, 20 and 15 Year Fixed Rate, and Adjustable Rate Mortgages (ARMs). Adjustable rate Mortgages come with a lower interest rate for the initial periods and then, subject to the market, might adjust to higher interest. Your loan officer will review these with you in detail.
Mortgage rates for conventional mortgages are typically higher than for a comparable FHA or VA loan interest rate, but the mortgage insurance required for a conventional loan is often much less.
NOTE: The “High Balance” conforming loan limits are in most counties in the Washington D.C. and Baltimore metropolitan areas. The Fannie Mae web site will give you the county loan limits.