What is a Conventional Mortgage?

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What is a Conventional Mortgage?

Annette Bui| Updated May 10, 2020 | Mortgage Programs 101

The mortgage process may be extensive, but it does not have to be overwhelming because you are not alone. My goal is to help educate, share, and devise a plan so you can be empowering with all the necessary tools and resources to help you understand and make smart informed decisions for your financial future.

WHAT IS A CONVENTIONAL LOAN?

Conventional loan products are not backed by the government or a government sponsored enterprise such as Fannie Mae or Freddie Mac. This means the criteria for the program can be significantly different in comparison to what the average consumer believes it to be. Mortgage products that are guaranteed by federal government additional to the Federal Housing Administration, such as the Veterans Affairs (VA loans) or United States Department of Agriculture (USDA loans). VA loans are designed for active or honorably discharged veterans, whereas, USDA programs are directed for home buyers in the rural areas that are guaranteed by the Department of Agriculture.

What are the Advantages of a CONVENTIONAL Mortgage?

Conventional loans are perceived as higher risk because no government entity guarantees them, but the benefit is it is generally more affordable for consumers with consistent income and better credit history. Since mortgage insurance premiums, if any, are much lower than government programs. The loan program is designed for a consumer who has a stable income and employment history, financially consistent, with larger cash reserves and higher credit scores. Since there is no government entity backing up these programs. The benefit for the consumer with steady income and credit history is the overall payment, closing costs are more attractive.  While, the down payment requirements can be as low as 5%. The overall payment with monthly mortgage insurance is lease attractive due to the lower equity position. Requirements may vary based upon occupancy with primary residences for the lowest of 5% and secondary or rental properties with a minimum of 15-25% down payment. This product is designed for somebody with more liquid cash reserves to enjoy the better payment and rate. If less than 20% or lower equity then the overall costs may jump quite substantially.

The CONVENTIONAL Mortgage Strategy:

Conventional program has two types including conforming and nonconforming.

Conforming loans are underwritten based upon Freddie Mac and Fannie Mac guidelines. Whereas, non-conforming program are created for consumers who are not eligible for conforming products and typically are utilized when the target loan balance exceeds the conforming limit. Nonconforming program also aid with a multitude of financial circumstances that can be customized for consumers with low credit rating, high debts, or derogatory trade lines such as a bankruptcy, foreclosure, or short sale.

How to get started?  Once you obtain your  Conventional  mortgage and finalize the purchase of your home, it may seem like you are on your own, but with the Annette’s Team, you will maintain ongoing guidance on mortgage knowledge, the advantages of refinancing down the line once you have built enough equity, your income changes or qualified to remove private mortgage insurance. The process of acquiring and maintaining a home mortgage is a form of artistry, no one story is the same and thus each client deserves a custom tailor road map to ensure the best fit to meet their financial goals. The mortgage artistry is a simple road map to aid in your home ownership journey. Provided to empower you with the necessary tools and resources to perfect your home loan experience, proactively built your home equity to maximize its appreciation rate and design the best game plan for your financial future. Congratulations on completing the first step in your journey to mastering the artistry with Annette”.