Some types of mortgages are backed or guaranteed by a government agency such as Veteran Affairs (VA) loans. Mortgages that are not insured by an agency are conventional loans. Conventional loans exist for homebuyers or homeowners who may not be able to obtain approval under non-conventional mortgage guidelines.
- While conventional loans are not insured by any government agency, these loans do adhere to specific guidelines. The guidelines that conventional mortgage lenders follow are set by Fannie Mae or more formally known as the Federal National Mortgage Association (FNMA). Fannie Mae was created by the federal government and is one of the biggest buyers and sellers of conventional loans. Fannie Mae sets all of the requirements that conventional mortgage borrowers must meet, including minimum credit scores, debt-to-income ratios and maximum loan amounts.
- Conventional mortgages tend to be 30-year-fixed rate mortgage loans. A 30-year-fixed rate conventional mortgage is a fully amortized mortgage. This means the mortgage payments are calculated so that the borrower pays equal principal and interest payments per month, and at the end of the 30-year term, the mortgage is paid in full. It also means that the interest rate is fixed for the entire term of the loan. These loans are also available in 25, 20, 15, and 10 Year terms. Some borrowers also like the conventional arms which are available in 10, 7, 5, and 3 year terms and usually based on 30 Year amortization.
- While unconventional loans may allow borrowers to finance up to 100 percent of the value of the home, conventional loans tend to require some form of a down payment. Conventional loan lenders usually require a 5 percent down payment, but some programs are available with as low as 3%. In most cases you will need to put down 20% to avoid paying mortgage insurance and / or being required to escrow taxes and insurance.
Maximum Loan Amount
The maximum loan amount is always subject to change. Click on the FHA Loan Limits link in the Resources menu to see the limits for specific zip codes.