Conventional Loans – What Are They?

 In Different Types of Loans, First-Time Home Buyers, Qualifying for a Mortgage

There are two basic categories of mortgage loans:  government loans (FHA, VA, and USDA Rural loans), and conventional loans.  Every loan that is not a government loan is called a conventional loan.

Within the category of conventional loans, there are a number of different types.  The most common conventional loans are conforming loans and jumbo loans.

Conforming conventional loans are loans that “conform” to the Fannie Mae or Freddie Mac underwriting guidelines.  Conforming loans are the most common type of loan used to purchase a house or refinance an existing mortgage.  They are popular for the following reasons:

Interest Rates and Down Payments for Conventional Loans

  • Interest rates for conforming loans are determined by the borrower’s credit scores.  That means they are usually cheaper than other types of loans for people with good credit.
  • Conforming loans only require 3% down for first-time home buyers, and only 5% down for anyone else buying a primary residence.
  • If a borrower has 20% or more for a down payment, there is no mortgage insurance required for conforming loans.  If a borrower has less than 20% down, they have to pay mortgage insurance.  However, mortgage insurance goes away with conforming loans once the borrower has 22% equity in the property.

Loan Limits for Conforming Conventional Loans

There are limits to the amount of money you can borrow and still get a conforming conventional loan.  The loan limits change at the beginning of each year.  If the amount of money you need to borrow is greater than the conforming loan limit amount, you have two options.  You will either need to get a second mortgage to go along with the first mortgage, or you will need to get a jumbo loan.  A loan that exceeds the conforming loan limit amount is called a jumbo loan.

Here are the 2019 conforming loan limits for the Denver metro area counties:

  • Adams, Arapahoe, Broomfield, Denver, Douglas, and Jefferson Counties have a conforming loan limit of $561,200.
  • Boulder County has a conforming loan limit of $626,750.
  • If you are buying a 2-, 3-, or 4-unit house, then the conforming loan limits are higher.

 

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