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Conventional Loans

What is a Conventional loan?

A Conventional loan is one that is not insured by the federal government (like FHA and VA loans) and may offer terms and conditions that are more attractive for your individual situation. Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (The Federal Home Loan Mortgage Corporation) guarantee or purchase conventional loan types and set the guidelines. Conventional loans may be either fixed or adjustable.

What are the biggest differences between a Conventional loan and a Government loan?

  1. Because a conventional loan is not insured by the government, they pose a higher risk for a lender if a borrower does not repay the loan as agreed. Conventional loans require Private Mortgage Insurance (PMI) to cover the risk if you make less than a 20% down payment on a purchase or have less than 80% equity in your house for a refinance. But, the benefit is that once a conventional loan drops below 80% loan to value, the monthly mortgage insurance premium can be discontinued.
  2. Conventional loans generally require a higher down payment, lower debt ratios and a higher credit score to qualify.
  3. Anyone can qualify for a conventional loan unlike FHA or VA loans. However, income and credit requirements are generally stricter.

Conforming vs. Non-Conforming

Conventional loans can either be conforming or non-conforming. Conforming loans have a loan amount under a specified maximum established by the Federal Housing Finance Agency (FHFA) based on the type of dwelling and geographical location. The primary benefit of a conforming loan is that, for borrowers with excellent credit, they typically offer lower rates and terms than a non-conforming loan.

Non-conforming loans are not purchased or guaranteed by Freddie Mac or Fannie Mae and include Jumbo loans. The primary benefit of a non-conforming loan is that it allows individuals to borrow larger amounts than is possible with a conforming loan. There are many factors at play when determining what loan product will best suit your individual needs, goals and circumstances.

Contact your George Mason Mortgage loan officer today to help you find the loan product that will provide you with the best rates and terms for your individual situation.


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