Conforming Conventional Mortgage – Conforming Loan
Any type of mortgage loan that adheres to loan amount limits set by Fannie Mae or Freddie Mac. These conforming limits allow lenders to fund loans with interest rates 0.25 – 1.5% lower than what a buyer would otherwise pay. The standards are re-evaluated each year based on changes in average home prices from the previous year and can vary by state.
Loans that are too big to conform to Fannie Mae and Freddie Mac limits are also known as jumbo mortgages. Most types of conventional loans conform, but jumbo mortgages are non-conforming and have higher interest rates because they rely on the investment backing from outside investors as opposed to the government-sponsored institutions Fannie Mae or Freddie Mac.
FHA Mortgage
An FHA loan is insured by the Federal Housing Administration, a federal agency within the U.S. Department of Housing and Urban Development (HUD). The FHA does not loan money to borrowers, rather, it provides lenders protection through mortgage insurance (MIP) in case the borrower defaults on his or her loan obligations. Available to all buyers, FHA loan programs are designed to help creditworthy low-income and moderate-income families who do not meet requirements for conventional loans.
FHA loan programs are particularly beneficial to those buyers with less available cash. The rates on FHA loans are generally market rates, while down payment requirements are lower than for conventional loans.
Some of the other benefits of FHA financing:
- Only a 3.5 percent down payment is required.
- Closing costs can be financed.
- Lower monthly mortgage insurance premiums and, under certain conditions, automatic cancellation of the premium.
- More flexible underwriting criteria than conventional loans
- Loans are assumable to qualified buyers.
VA Loans
VA guaranteed loans are made by lenders and guaranteed by the U.S. Department of Veteran Affairs (VA) to eligible veterans for the purchase of a home. The guaranty means the lender is protected against loss if you fail to repay the loan. In most cases, no down payment is required on a VA guaranteed loan and the borrower usually receives a lower interest rate than is ordinarily available with other loans.
Other benefits of a VA loan include:
- Negotiable interest rates.
- Closing costs are comparable and sometimes lower – than other financing types.
- No private mortgage insurance requirement.
- Right to prepay loan without penalties
- The Mortgage can be taken over (or assumed) by the buyer when a home is sold.
- Counseling and assistance available to veteran borrowers having financial difficulty or facing default on their loan.
Although mortgage insurance is not required, the VA charges a funding fee to issue a guarantee to a lender against borrower default on a mortgage. The fee may be paid in cash by the buyer or seller, or it may be financed in the loan amount.
A VA loan can be used to buy a home, build a home and even improve a home with energy-saving features such as solar or heating/cooling systems, water heaters, insulation, weather-stripping/caulking, storm windows/doors or other energy efficient improvements approved by the lender and VA.
Veterans can apply for a VA loan with any mortgage lender that participates in the VA home loan program. A Certificate of Eligibility from the VA must be presented to the lender to qualify for the loan.
Non-Conforming Mortgages
A mortgage loan on a home where the loan value exceeds the standard limits for conforming loans set by Fannie Mae and Freddie Mac, the government-sponsored enterprises that buy loans from banks. As a result, the interest rates on these loans are higher because lenders don’t have the assurance that Fannie or Freddie will guarantee the purchase of the loans. Each year, Fannie and Freddie . If the loan value exceeds the conforming limit, there’s no assurance that Fannie and Freddie will guarantee the purchase of the loan. Brokers and lenders must be willing to take on greater risk to fund jumbo mortgages.
Jumbo Mortgages
A mortgage loan on a home where the loan value exceeds the standard limits for conforming loans set by Fannie Mae and Freddie Mac, the government-sponsored enterprises that buy loans from banks. As a result, the interest rates on these loans are higher because lenders don’t have the assurance that Fannie or Freddie will guarantee the purchase of the loans. Each year, Fannie and Freddie . If the loan value exceeds the conforming limit, there’s no assurance that Fannie and Freddie will guarantee the purchase of the loan. Brokers and lenders must be willing to take on greater risk to fund jumbo mortgages.
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