Conventional loans are mortgage loans that are not part of a specific government agency, such as the Federal Housing Administration (FHA), Department of Agriculture (USDA) and the Department of Veterans Affairs (VA). However, conventional loans are commonly interchangeable with “Conforming Loans”, which are required to conform to Fannie Mae and Freddie Mac’s underwriting guidelines. Typically your minimum down payment will be in the 3%-5% range, however there is currently a loan being offer by Freddie Mac which only requires a down payment of 1%, see our “1% Down Payment Equity Builder” page. Please call us for a loan quote displaying our Incomparable Rates & Closing Costs!
Mortgages not guaranteed or insured by these agencies are known as conventional home loans. They include:
- Conforming loans – Fannie Mae and Freddie Mac are two government-sponsored enterprises (GSEs) who buy mortgages from lenders and sell them to investors. Their purpose is to make mortgages more widely available. All conforming mortgages are also conventional mortgages
- Non-conforming loans – Are mortgages that don’t follows the guidelines put in place by Freddie Mac and Fannie Mae, including loan limits.
- Jumbo loans – Is a mortgage for an amount that exceeds conforming loan limits established by Fannie Mae & Freddie Mac. Any mortgage over the current loan limit of $424,100 is considered a Jumbo Loan.
- Portfolio loans – Are loans held and serviced by mortgage lenders on their own books. Because lenders can set their own guidelines for these loans, these products may have relaxed lending features that other mortgages do not.
- Sub-prime loans – Are a type of mortgage typically offered at a rate above prime to individuals who do not qualify for prime rate loans. It’s generally a loan that is offered to prospective borrowers with low credit ratings or other factors that suggest they have a reasonable chance of defaulting on the mortgage. The higher interest rate is intended to compensate the lender for accepting the greater risk in lending to such borrowers.
Benefits of a Conventional Loan vs an FHA Loan
- Mortgage Insurance – FHA loans require monthly mortgage insurance premiums (MIP) that are charged over the life of a 30 year loan. A conventional mortgage will remove the mortgage insurance when the loan reaches 78% loan to value following the amortization schedule. FHA loans also require a one-time upfront mortgage insurance premium (UFMIP) due – currently 1.75% of the total loan amount. Conventional loans do not require any upfront MIP.
- Most competitive terms – Even though FHA interest rates may be lower than a conventional loan, the lack of the Up Front Mortgage Insurance Premium associated with FHA loans make conventional loans a better option for borrowers with higher credit scores
- Flexible terms– Conventional loans offer several repayment periods. A shorter repayment terms will offer more competitive mortgage rates. A borrower can choose between 10, 15, 20, 25 or 30 year repayment periods. FHA loans generally only offer 15 and 30 year fixed rate options.
Missouri Mortgage Clearing House is celebrating its 17th year located in Fenton, MO. As a Mortgage Broker we also work with clients in St. Louis MO, St. Charles MO, Jefferson County MO, Kansas City MO, Springfield MO as well as throughout the entire state of Missouri. For more information or to see if you qualify please call us at (636) 717-1900, Apply Now, or fill out the information to the right and we’ll get in touch with you.