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Conventional Loans

Learn More About Conventional Loans Today

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Conventional mortgage loans are not underwritten to the government loan guidelines (FHA, VA, and USDA). The majority of conventional loans are underwritten to Fannie Mae and Freddie Mac guidelines. Lenders such as banks and financial institutions can have their own guidelines. If required, a conventional loan that is above 80% loan to value would be insured by a private mortgage insurance company. A conventional loan can be used to purchase or refinance a home.

Currently, borrowers that have 20% or more towards their down payment are using conventional loans. A conventional loan can finance up to 97% of the purchase price of the primary residence. These loans can be either Fixed or ARM (Adjustable Rate Mortgage). The most popular ARM loans are 3/1 and 5/1 ARM loans. When dealing with an ARM loan, the first number represents the amount of time that the loan’s interest rate is locked, and the second number represents the amount of variance for the interest rate after the fixed-rate period.

ARM loans are popular but are designed for borrowers who can afford a fluctuation in their payment. If a borrower plans on refinancing or selling the property in a specific time period, then an ARM loan may be a suitable option. When purchasing a second home or investment property, a conventional loan is the only source of financing. A buyer can purchase a second home with as little as 10% down and purchase an investment property with as little as 20% down.

A second home is occupied by the purchaser part-time, will not be rented out, and will not produce additional income. A vacation property and seasonal homes are also viewed as a second home. Due to interest rates being the same as a primary residence and the down payments being less than an investment property, lenders look closely at second homes. A purchaser may try to mask an investment home as a second home which is not allowed. A second home is generally greater than 50 miles from the buyer’s primary residence, and when purchasing a second home that is less than 3 hours away from their primary residence, borrowers must justify the need for a second home.

An investment property is not occupied by the purchaser, can be rented out, and will produce additional income. An investment property tends to have a higher interest rate and tighter requirements. Some lenders have a limit to the number of homes a purchaser can own. Most lenders have a maximum of 5 properties; however, NOVA® Home Loans provides a program which allows a homeowner to own up to 10 properties. Currently, the maximum amount of properties allowed by Fannie Mae is 10.

NOTE: If you have had a foreclosure with extenuating circumstances in the past, conventional loans will require you to wait 3 years from the foreclosure date and put forth a minimum down payment of 10%. If there was not an extenuating circumstance, you will need to wait 7 years from the foreclosure date.

*The Product/Program information contained here is educational only and does not represent actual rates or financing terms.

**Other conditions and restrictions may apply. Available loan programs are subject to change without notice. Contact your loan officer for more information.

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