Conventional loans cover every loan that is not either insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA).
Conventional loans can be used to purchase or refinance a home. Conventional loans are typically associated with down payments in the range of 5%-20%. With a conventional loan, you can purchase anything from a single family home to a four family home.
Conventional Loans have three main categories:
Conforming / Non-Conforming
Conforming: Loans that meet the approval guidelines of the two largest loan purchasers in the nation: Freddie Mac and Fannie Mae.
Non-Conforming: Loans that do not meet the approval guidelines for Freddie Mac and Fannie Mae. These generally have higher interest rates and may also have negative terms such as pre-pay penalties.
There are several factors that lenders look for to determine whether a mortgage loan would be conforming or non-conforming.
Here are the most common:
- Credit history & scores
- Type of loan the borrowers are requesting
- Employment history & income
- Property being purchased or refinanced
- Funds available from borrower at closing
Conventional loans also have limits on the amount that can be financed. Any loan above these limits are considered a jumbo loan. Jumbo loans frequently have higher rates because the lenders have a higher risk. These amounts usually change every year based on the current market.
Currently, the conventional loan limits are as follows:
- One-family loans: $417,000
- Two-family loans: $533,850
- Three-family loans: $645,300
- Four-family loans: $801,950