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Understanding Conventional Loans

Even if you have taken out a mortgage before, you may not have understood all the terms floated around in discussions with your lender. Since they work in the mortgage industry everyday, many lenders use terms and assume everyone knows exactly what they are talking about. This often happens when people discuss conventional loans, which are the primary type of loan issued in the United States mortgage industry.


In this post, we will discuss the basics of conventional loans and hopefully help you understand whether a conventional loan is right for you. At Local Mortgage, we pride ourselves on helping people find the best mortgage products for them so they can get into their dream homes at a low cost. Our mortgage payment calculators can help you determine if a mortgage is right for you, and if you live in Georgia, Colorado, or Tennessee, then apply with Local Mortgage!



What is a Conventional Loan?


The most basic definition of a conventional loan is any loan that is not backed or guaranteed by a government agency. Thus, any loan that is not a Federal Housing Association (FHA) loan, a Veterans Affairs (VA) loan, or a United States Department of Agriculture (USDA) loan, is considered a conventional loan. Thanks to this broad definition, there are many types of conventional loans.


Many people conflate conventional loans with conforming loans and end up thinking that these are the exact same thing. Don’t make this mistake; they are often different! Many conventional loans are in fact conforming loans, but they do not need to be conforming loans to be considered conventional. Any loan that is not backed or guaranteed by a government agency, such as the three mentioned above, is a conventional loan.


Types of Conventional Loans


There are many types of conventional loans, including conforming loans, non-conforming loans, and jumbo loans. The mortgage experts at Local Mortgage will work with almost any conventional loans, and we can even help you determine which type of mortgage is best for your situation. Our team will help you get into your dream home, regardless of whether that requires a conforming loan, a non-conforming loan, a jumbo loan, or even a non-conventional loan.


Conforming loans are loans that meet the guidelines outlined by Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac are two government-sponsored entities that buy mortgages. In order to meet the guidelines outlined by Fannie Mae and Freddie Mac in 2019, most loans can’t exceed an amount of $484,350. Moreover, the credit scores of the borrowers and the down payments on the loans must meet the funding requirements set forth by these two entities.


Non-conforming loans are simply mortgages that do not meet the guidlines outlined by Fannie Mae and Freddie Mac. When mortgages exceed the lending limit specified by the Fannie Mae and Freddie Mac guidelines, they are called “jumbo loans.” Jumbo loans are great options for many people searching for homes in a red-hot housing market such as the market in some areas of Georgia.


Other types of conventional loans are out there, but the thing they all have in common is that they are not backed by government agencies like the FHA, VA, or USDA. While they do not have this backing and as a result, they often include higher interest rates, conventional loans can be just as affordable as non-conventional loans. Whether a conventional loan is affordable or not depends in large part on your unique financial circumstances, and thus it often helps to get assistance from mortgage experts.



How They Work


Conventional loans are made available to borrowers by private lenders, such as Local Mortgage. The terms and structure of conventional loans varies greatly, but they always involve terms agreed to by the private lender and the borrower. Most of the conventional loans issued in the U.S. use a fixed interest rate and typically a term of 30 years.


Securing a low interest rate is one of the easiest ways for borrowers to save money on conventional loans. The interest rate on these loans is determined largely by your credit score, the average interest rate in the mortgage industry, and other factors such as the down payment on the mortgage. When a borrower makes a larger down payment, they can secure a home loan with a lower interest rate and ultimately save more over the life of the loan. When you look for a conventional loan, be sure to check rates and ensure that you save on your monthly payment.


Sometimes, private lenders may require you to take out mortgage insurance on a conventional loan. This typically occurs when one facet of your application fails to meet the requirements of the lender. So, you can secure a conventional loan with a lower down payment than usual, but you may need to make up for it with mortgage insurance or a higher interest rate. Our team can help you determine if this is a good option for you or if you could qualify for an FHA, VA, or USDA loan instead.


Find the Right Mortgage Product With Local Mortgage


In some cases, a conventional loan is the best option for someone trying to buy a house. In other cases, it can be a costly option. Mortgages are largely situational, and to save money, you should try to find the right mortgage product for your situation. Local Mortgage makes it easy to do just that.


Our Mortgage I.D. tool can help you get an idea of what mortgage product might be best for you. Better yet, Mortgage I.D. can take only minutes to do so! Be sure to read our post on using Mortgage I.D. to learn more.


Hopefully this post has taught you the basics about conventional loans. If you have any questions about mortgages or throughout the mortgage process, then don’t hesitate to contact Local Mortgage! Our team can help you with every step of the way. We can even help you apply and take out a mortgage in Georgia, Colorado, or Tennessee.


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8295 Tournament Drive Suite 150

Memphis, TN 38125

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