Conventional loans boast great rates, lower costs, and home buying flexibility. They are the loan option of choice for about 60% of all mortgage applicants. Conventional loans are also known as conforming loans, since they conform to a set of standards set by Fannie Mae and Freddie Mac. The following are highlights of this program.
Conventional Loan RequirementsDown PaymentA conventional loan requires as little as 3% down. Fannie Mae and Freddie Mac rolled out a new program in December 2014 allowing for smaller down payments.
Conventional financing is now a strong competitor to FHA. While most FHA mortgage insurance remains on the loan for life, conventional mortgage insurance is cancelable. Those who qualify for a conventional loan typically opt for this program over FHA due to lower fees.
Private Mortgage Insurance (PMI)PMI is required any time you put less than 20% down on a conventional loan. For those with good credit, private mortgage insurance on conventional loans can cost less than FHA mortgage insurance. This is because PMI is risk-based insurance, meaning that the better your credit history, the lower your premiums. PMI is much like auto insurance. You benefit if you have a clean history.
Some of the major private mortgage insurance providers are MGIC, Genworth Financial, RMIC, and Radian. Each company has varying rates for different down payment and credit score scenarios, so make sure your lender shops around for the best PMI cost.
2017 Conventional Loan LimitsGenerally the conventional loan limit for 2017 is $424,100. However, Fannie Mae and Freddie Mac have designated high-cost areas where limits are higher. For example, a single-family home in Seattle, Washington could have a maximum loan of $592,250. The same home located -in in Los Angeles, California would be eligible for a loan amount up to $636,150.
Increased loan amounts are also available for 2-, 3-, and 4-unit homes. Standard loan limits are as follows.