A conventional loan is any loan that is not guaranteed by the government’s Federal Housing Administration (FHA), Veteran’s Administration (VA), or Rural Housing Services (RHS). Instead conventional loans are protected through government-sponsored enterprises such as Fannie Mae and Freddie Mac.
Conventional loans are secured by government-sponsored enterprises such as the Federal National Mortgage Association (aka “Fannie Mae”) and the Federal Home Mortgage Corporation (aka “Freddie Mac”). These are the nation’s two largest federally chartered and stockholder-owned mortgage companies.
To qualify for a conventional loan your monthly mortgage payment cannot usually exceed 26%-28% of your gross monthly income. Another requirement is that your total mortgage expenses and long-term debt (anything that you will be paying for more than the next 11 months, such as car loans or student loans) cannot usually exceed 33%-36% of your gross monthly income.
With conventional financing, you will pay Private Mortgage Insurance (PMI) if you obtain a loan that is more than 80% of the cost of your house. You will continue to pay monthly PMI until you have paid 20% of your home’s value. For a conventional loan, your down payment must be at least 10% of your mortgage.
You do not qualify for conventional financing if you have declared bankruptcy in the last two years or if you foreclosed on a house in the last five. You will also need to have good credit to obtain conventional financing. Even though there are stricter standards to receive a conventional loan as opposed to financing through FHA, the rates for conventional loans are typically lower than FHA loans.
Even though the difference in these loan rates may seem minimal, you may pay a lot less long-term with a conventional loan although the initial investment will be more. There are a few types of conventional loans to choose from including fixed rate mortgages, adjustable rate mortgages, and balloon mortgages. Conventional loans are most commonly financed for 30 years but you can also choose from shorter term loans such as a 15- or 20-year loan.
If you think a conventional loan is right for you, contact Meridian Mortgage Solutions at 317-968-9500 or apply online for a conventional home loan.
Meridian Mortgage Solutions is a subsidiary of Endeavor Capital, LLC Licensed through the Indiana Department of Finance and Insurance. License #17519 & 17520, NMLS#222524
Endeavor Capital, LLC and its DBA's are not acting on behalf of or at the direction of HUD/FA or the Federal government.
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