Conventional Loans – Frequently Asked Questions (FAQ)
PrimeLending, A PlainsCapital Company
What is a conventional mortgage?
Conventional mortgages are home loans that adhere to the terms and conditions established by Fannie Mae and Freddie Mac. These terms include income requirements, credit score guidelines and down-payment stipulations.
There are many different types of conventional mortgages available to PrimeLending clients in most states, including those conventional loans with fixed-rates and adjustable-rates. In most states, conventional loans are limited to amounts at or below $417,000. The cap is increased to $625,000 in Alaska and Hawaii. In most cases, loans higher than this mortgage amount are referred to as jumbo loans. Most conventional loans require down payment amounts anywhere from 5 to 20% of the total loan amount.*
What is the difference between a conventional mortgage and an FHA loan?
Whether you choose a conventional mortgage or FHA loan, you will borrow the money from a lending institution. With an FHA loan, however, the loan is guaranteed through the Federal Housing Administration (FHA). Unlike conventional mortgages, which generally require at least 5% down, FHA loans can be obtained with as little as 3.5% down.*
With an FHA loan, 100% of the funding used for the down payment may be obtained through down-payment assistance programs, relatives or even government agencies. For conventional loans, if you put 20% or more down, the entire down payment can come from a relative. If less than 20% is put down, at least 5% of the down payment must come from the borrowers’ own funds.
If you are interested in a conventional or FHA loan, use the contact form to the right or call (800) 308-8503. We are here to answer any questions you may have about FHA or conventional loans.
What are the benefits of a conventional loan versus an FHA loan?
For borrowers with little money for a down payment, FHA financing can be a great mortgage option. FHA loans also have more flexible guidelines, which is beneficial to borrowers with credit scores below 740. PrimeLending offers FHA financing for credit scores 600 and above. With an FHA loan, in addition to paying a nonrefundable premium that is equivalent to 1% of the loan, you must also pay a monthly payment toward your mortgage insurance. FHA loans require you to maintain the mortgage insurance for the greater of 5 years or until your loan amount has reached 80% of the sales price.
For borrowers with money for a down payment, conventional financing can be a popular mortgage option. Mortgage insurance can be removed as soon as the loan amount has reached 80% of the sales price.
How common are conventional mortgages?
A number of different factors, such as market conditions and consumer trends, determine how many people choose to take out conventional mortgages on an annual basis. The percentage of consumers who take out conventional mortgages generally ranges from anywhere from 35 to 50% of all mortgage loans in the United States. Conventional loan limits are $417,000 in most areas of the United States, while FHA loan limits are typically much lower.
To contact a loan expert, use the contact form to the right or call (800) 308-8503.