| A conventional home mortgage is one of the types of home loans available to borrowers. Home loans, also called mortgages, are property loans that must be repaid over a predetermined period of time. The property serves as collateral for the loan. If the borrower does not pay as agreed the loan goes into default and the property goes into foreclosure (it is taken back by the lender).
If you are considering home finance loans, a conventional home mortgage is likely to be among your considerations. Here is what you need to know.
A Conventional Home Mortgage Can be Federally Insured
If your home loan amount falls below established limits it is a conforming or conventional home mortgage. This type of home loan meets federal guidelines including loan limits. Loan limits are reviewed annually by Freddie Mac and Fannie Mae. For the year 2006 the limit for a single family unit was $417,000. Loan amounts exceeding the limits are called non-conventional or jumbo loans.
Conventional Home Mortgages are Available for Homes with up to Four Family Units
Loan limits increase with the number of units contained in the property. There are several options for these types of home loans including:
- Interest only - payments cover interest only for a specified period and later include both the interest and principal.
- Loan terms as short as 5 years or as long as 30 years
- Fully amortizing fixed rate mortgages –payments include the interest and principal, they remain the same for the life of the loan and the loan balance is paid in full at the end of the loan term.
- High Leverage or high loan to value ratio (LTV) loans
There are two types of government loans available - the FHA loan and the VA loan. FHA (Federal Housing Administration) loans are available to all buyers. These loans require only 3 percent down and allow borrowers to finance closing costs. Your credit score is not considered but your credit history is.
VA (Department of Veteran Affairs) Loans are loans are only available to eligible veterans and spouses under certain conditions. There is no down payment requirement with VA loans and veterans can finance eligible loan fees.
A Federal Loan May be the Right Option if Your Home Needs Repairs
In the past, home owners purchasing homes in need of repairs secured two loans. One loan for the purchase of the home and one loan for repairs.Section 203 (k) of the National Housing Act allows borrowers to apply for one loan that can be used for both expenses. Loans are available at both fixed and adjustable rates. Loan amounts are based on the anticipated value of the home after the rehab has been completed. These loans are federally insured and unlike personal loans, which many home owners used for repairs in the past, this type of mortgage loan offers tax advantaged savings.
Applying for a mortgage is now easier than ever. Borrowers can apply online, get pre-qualified to make their home search more productive, and close from their home or office (no more traveling to the lender or attorney’s office).
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