What kinds Conventional Loan Programs are offered?

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January 29, 2022
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What kinds Conventional Loan Programs are offered?

Conventional Loan-to-Value Ratio Limits for Cash-Out Refinance

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It’s a common belief that 20% down is needed to meet conventional loan down payment requirements, and that’s no longer the case. In reality, the conventional mortgage down payment amount can be as low as 3% for qualified applicants.

For a primary residence, conventional home loans require home buyers to invest at least 3% – 20% of the sales price towards down payment and closing costs. Example: If the sales price is $100,000, the home buyer must invest at least $3,000 – $20,000 down to meet conventional loan down payment requirements.

What will my Interest Rate be?

Conventional loan rates are determined by the program you qualify for and your credit score. You might be asking yourself what is the formula to calculate interest rates? Interest rates are driven off of Mortgage Backed Securities (MBS) which are commonly referred to “mortgage bonds”. These value of these bonds determine whether the interest rates rise or fall. Your final rate will determine your payment using the standard calculate mortgage payment formula.

What is a Non-Conforming Loan?

In contrast, conventional non-conforming loan programs don’t meet loan requirements set forth by the FHFA, Fannie Mae, or Freddie Mac and they aren’t backed by any government agency. Before 2008, non-conforming home loans were like the Wild Wild West. Readily available non-conforming loan options were the single largest contributor to the housing e fate as the lenders that promoted them. Suspect non-conforming loan programs included sub-prime, stated income, no income verification (NI), no asset verification (NA), and even no documentation mortgage products (NINA). No job or credit score was necessary to buy a home.

Lending regulations tightened after the financial crisis, hence the surviving non-conforming mortgage loans and non-conforming loan lenders are now required to document applicant income and credit history. As a result, today’s non-conforming home loans are less risky. Jumbo non-conforming loans are a popular example. Non-conforming jumbo loan requirements are not much different than conventional conforming loans.

Non-Conforming Loan Requirements

Non-conforming loan requirements can vary as greatly as the lending institutions that offer them. That’s exactly what makes them non-conforming. Qualifications that can vary from program to program include maximum loan amounts, minimum credit scores, employment history, property loan-to-value requirements, bankruptcy wait times, and countless others.

One consistent thing among nonconforming loans is that new regulations mandate supporting documentation be included with new applications. Most say that the days of stated-income and no-documentation loans are behind us, although there are recent rumblings of some smaller lenders still offering them on a limited scale.

Conventional Conforming Loans vs. Non-Conforming Loans

Straightforward, common sense conventional loan requirements combined with low interest rates and minimal fees are considered the signature qualities of conforming loans. In contrast, non-conforming conventional loans have often encompassed nearly every risky lending practice known to man until recently. Conforming vs. non-conforming conventional loan requirements related to an applicants credit score address and history, debt-to-income ratio and loan-to-value ratio are explained here

  • Fixed-Rate Loans – Most Conventional Mortgages are fixed-rate mortgages. In a fixed rate mortgage, your interest rate stays the same for the entire loan period. With a fixed rate Conventional Mortgage, you always know exactly how much your monthly payment will be. Contact us for today’s free Conventional mortgage rates.
  • Adjustable Rate Loans – With a conventional adjustable rate mortgage (ARM), the initial interest rate and monthly payments are low, but these may change during the life of the loan. Conventional Loans mainly use the Constant Maturity Treasury Index (CMT) or the London Interbank Offered Rate Index (LIBOR) to calculate the changes in interest rates. Conventional ARMS are offered with initial fixed rate periods of 3 years, 5 years, 7 years and 10 years.
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