CONVENTIONAL MORTGAGE LENDERS
Getting a mortgage can be confusing. To make it simple to understand, mortgage loans fall into (2) two main categories: 1. Government, 2. Conventional. Government mortgage loans include FHA loans (Federal Housing Administration), VA loans (Department of Veterans Affairs) and USDA loans backed by Rural Development (United States Department of Agriculture). All other mortgage programs are considered conventional loans because they are not government guaranteed or insured.
When you apply for conventional mortgage terms and conditions of your mortgage must meet the funding criteria set Fannie Mae and Freddie Mac, in addition to the Fannie, Freddie minimum requirements the mortgage must me your conventional mortgage lenders add-on minimum requirements. If your mortgage request does not meet these minimum Fannie, Freddie guidelines chances are your loan will not be approved. These two government-sponsored entities purchase conventional loans made by private mortgage lenders to establish mortgage backed securities that are then sold to investors. Depending on the conventional mortgage market conditions conventional mortgage loans average about 30-50% of the total market. These conventional mortgages may be fixed-rate or adjustable-rate mortgages. If your loan request does not meet the conventional lenders requirements your loan request may fit into a portfolio lenders guideline.
There are several benefits to having a conventional mortgage. Because individual mortgage lenders and not the federal government set the fees and rates, conventional financing can often have both lower interest and fees. Additionally, mortgage lenders may allow borrowers to use other collateral as security other than the home being mortgaged. This is a particular benefit to mortgage applicants with limited access to credit.
For some mortgage applicants, conventional financing may not be feasible. Conventional mortgage lenders generally require larger down payments and better credit ratings than government-backed lenders, making it difficult for many mortgage applicants who do not have a large down payment to qualify. Interest rates are also set by conventional mortgage lenders at times can exceed those of FHA and VA loans, both of which are government-backed. However, for the most part, mortgage interest rates for conventional loans and VA, FHA loans do not vary significantly, as they are both competing for your mortgage business.
Additionally, if the conventional mortgage has an LTV (loan-to-value) greater than 80 percent, the borrower is required to purchase Private Mortgage Insurance (PMI), which is paid monthly. This is not insurance for you – the homebuyer. This mortgage insurance for the mortgage lender in case the borrower defaults on the mortgage loan. Please note that once your LTV drops below 80 loan to value, you will also be able to drop the PMI, making conventional financing less expensive.
With all of these factors to consider, it is not easy to decide which type of mortgage is right for you. One of our mortgage professionals can fully assist you in making this decision. A Full mortgage application will help us determine what options are available to you. Once your full mortgage application is complete one of our mortgage professionals will review with you and discuss your options. Our loan officer show you how the costs break down compared with one another, allowing you to make an informed decision on your mortgage.