Making Sense of the Home Mortgage
One thing the mortgage crisis confirmed for me was that mortgages should be left to mortgage professionals. Among other problems going on during the early part of the 21st century, there were real estate agents trying to work as the agent and the lender in their transaction. Stupid! At the time I didn't like it and the idea still frustrates me. As a real estate professional I'm constantly asked about loans. Here's where I tell home buyer's, "To get a complete understanding of loan products available, consult a qualified lender on our preferred lender list, and let me know what you find out." I go on to explain that mortgage rules can change as often as some people change clothes, and only a skilled mortgage professional will know how to answer these questions. Having said that, sharing the basics can help.
Conventional loans are non-goverment sponsored loans available from banks. The normal conventional loan is called an 80/20 loan, meaning the buyer puts 20% down, the bank finances the rest. Nowadays, there are all kinds of options to put less than 20% down using mortgage insurance (PMI or MI). After the mortgage crisis, it appeared that the only way to get conventional financing was to put 10-20% down. This made government sponsored loan programs like FHA loans, USDA loans, and VA loans very popular in those days. The further we got from the crisis, the more we're seeing conventional loans competing with government loans by offering 5%, 3% and even in some cases 100% financing.
Typically conventional loans have the best rates and terms.
The two types of conventional loans are CONFORMING and NON-CONFORMING. This pertains to the FANNIE MAE guidelines for the secondary mortgage market. Essentially conforming loans comply with these Fannie Mae Guidelines and the loans can be sold to Fannie Mae on the secondary loan market. Many other secondary lenders use the same guidelines.
Non-conforming loans are loans such as JUMBO loans (loans made above the Fannie Mae limit), and loans on Non-Warrantable Condominiums.