Many clients are frequently baffled about where to begin the financing process and what they should be looking for in a mortgage. With so many changes over the years, it’s hard to keep up! We decided to simply and effectively lay out the most common loans and their general guidelines over the coming weeks as part of a series “Let’s Talk Loans”.
Conforming Conventional Loans
What is it? “Conforming” loans are the most common loans in the marketplace, and meet the required standards of both Fannie Mae and Freddie Mac (that is, they “conform” to Fannie and Freddie rules), both of which purchase loans from lenders and then package them up to sell on the secondary market. This allows lenders to receive cash up front for you loan, so they can lend to someone else. Conforming loans can be fixed rate or adjustable rate, and can be 15 year or 30 year.
Why is that important? Investors buy these packaged loans from Fannie and Freddie. Fannie and Freddie charge a guarantee fee, which is approximately 0.5% more than your interest rate. Some banks, however, keep these loans in their own portfolio rather than sell them, depending on the market and their own investment objectives.
What are the guidelines? Typically, you need at least a 5% down payment, and good credit. The conforming loan limit is generally 417,000; however, in more expensive markets of the country, including the DC Metro area, high-value conforming loans up to $625,500 can be found. But be prepared to have a 10%-20% down payment for these larger loans. And without 20% down, you can expect to pay private mortgage insurance, as well.
Next Up: Let’s Talk Loans: FHA
To find out more, or to speak with a home loan expert, contact us!