Conventional Loans

What are Conventional Loans?

Conventional loans – also known as conforming loans – are often backed by government-sponsored enterprises (GSE) like Fannie Mae or Freddie Mac. Short for Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac), both are corporations that trade in mortgages – providing access to affordable home financing for millions of Americans. Ideal for both first-time and seasoned home buyers who don’t wish to part with a large down payment, the minimum down payment for first-time homebuyers is 3% of the purchase price. For more seasoned buyers, the minimum down payment is 5%. Bear in mind that any down payment under 20% means the borrower will be required to pay private mortgage insurance (PMI) on their loan. In addition to primary residences, Fannie Mae and Freddie Mac also offer conventional loans on vacation or second homes, as well as investment properties. The interest rate and cost of conventional loans are determined by credit score, loan-to-value ratio, transaction type (purchase or refinance), occupancy type and property type. For example, a borrower putting down 15% on a single-family home with a 740 credit score will have a lower rate/cost than a borrower putting down 5% on a condo with a 690 credit score. Confused? Don’t worry, we’ll walk you through it!
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