Conventional Loans

couple-investment-key-1288482What is a Conventional Loan?

A lot of people do not know the difference between one mortgage loan or another. And that is OK. What most people do know is that they need a mortgage loan. The question is, which mortgage loan is right for you? A conventional loan (non-government), simply put, is a mortgage loan offered by non-government sponsored lenders or lending institution (an entity that only lends money) or banks (an entity the lends money but can also provide other products and services) to consumers. Banks and lending institutions usually use their own money and fund loans at their own risks and discretion without the backing or support of other entities or the government (see FHA Loans for more details), in this capacity, with the intention to sell the loan off to other lenders and investors in the secondary market to recoup their money and do it all over again.

Benefits of Conventional Loans

Conventional loans are intended for borrowers with better income and credit scores, and these loan types usually offer or have good rates and flexibility. But what constitutes better income and or better credit scores? Well you see most conventional loans are written as conforming loans, these loans are mortgages that adhere to guidelines set forth by Fannie Mae and Freddie Mac. You may have heard of these two people before. Well, they’re not actual people. Freddie Mac and Fannie Mae are a government sponsored enterprise. But wait! Weren’t conventional loans non-government? Yes, this is true, however, for banks and lenders to sell their loans off to other lenders and investors, they must comply with certain standards and funding guidelines set by Freddie Mac and or Fannie Mae in order to play in that field. An important detail to know is that, Freddie Mac and or Fannie Mae aren’t lenders, and do not lend money, however, they do play a key role in the secondary market (as mentioned above in What is a Conventional Loan?) and act as a filter, sort of speak, to ensure that banks play fair and do what is right by their customer always.

Conforming vs. Non-Conforming Loans

Conventional loans are split into two types: conforming and non-conforming conventional loans. A conforming loan is a mortgage loan that conforms and meets Freddie Mac and or Fannie Mae standards and funding guidelines (as mentioned above in Benefits of Conventional Loans). Not all lenders offer non-conforming mortgage loans, however, a non-conforming conventional loan is just that, it is a conventional mortgage loan that does not meet or conform to Freddie Mac and or Fannie Mae standards and funding guidelines. So why is this even important to you? Well. Glad you asked. When considering what type of loan you could qualify for, we think it is important for you to know that these government sponsored enterprises set loan limits, and most banks and lending institutions lend according to these limits and in many cases would require most borrowers to meet other specifications set by Freddie Mac and or Fannie Mae in order to qualify for a conforming conventional loan through their institution, so that the bank or lender can in turn keep selling and lending their money to other potential mortgage borrowers. Not all might benefit from a conforming loan, however, for consumers that cannot get qualified for a conforming conventional loan, may it be due to them having lower than required credit scores, or not having enough money for a down payment, or having a higher debt to income ratio, or perhaps because they might not have met the minimum documentation requirements set forth by Fannie Mae or Freddie Mac to be able to get qualified for a conforming conventional mortgage loan, banks and lenders that offer non-conforming mortgage loans would be a good option. Just note, these banks might have a slightly higher than normal interest rate, so be sure to consult with one of our mortgage loan specialists about these types of mortgage loans, because instead of being able to sell their loans off in the secondary market, such banks would need to hold these loans on their books and in many cases service them. Either way, the biggest difference between a conforming vs. a non-conforming loan, is that non-conforming loans cannot be purchase by the government sponsored enterprises. But that doesn’t mean you cannot qualify for a conventional loan. If you are looking to purchase a home in Orlando, or anywhere in Florida, contact Roberto Irizarry at (407) 720-4636 for more information, or simply fill out the form on this page.

Not all Lenders and Banks are Created Equal

Now, here is where it gets fun. Different lenders and or banks can impose different guidelines, or rules, based on their own discretion to lend. What does this mean? Well, let’s say you had a lot of money and people would often come to you and ask you for a loan, doesn’t matter how big or small a loan it is, you don’t know these people, right? They tell you they’re willing to repay the loan, but what guarantee do you have that they will indeed re-pay your loan? Especially if you are counting on using that money again to lend. Well, this is where you implement certain rules or guidelines on your lending. This is what most banks and or lenders do. For example, Fannie Mae (see Benefits of a Conventional Loan above) says all a consumer will need is at minimum a 620 credit score and with as little as 3% down payment they meet conforming guidelines (see Conforming vs Non-Conforming above), however, because in this example, you are the person lending your own money, you have decided to set a rule stating that your potential borrower must have at a minimum a credit score of 680. This is what makes each bank or lending institution different from one another. Not all banks have the same rules to lend. So, let’s say a good friend of yours decides he or she wants to do the same thing as you, and they start lending their money out. The difference between your friend and how they choose to lend, and you and how you might choose to lend, are entirely different. Your friend may be willing to take higher risks in contrast to your conservative approach. It is up to them. For example, your friend can choose to lend with less restrictions. He or she may require their borrowers to put less skin in the game, like putting 5 percent down payment, instead of the normal 20% down payment most banks or lenders ask for. Who do you think most people would want to go to and get a loan from, you or your friend? Banks and lenders work in this similar fashion. While many might think that a 20% down payment is required for all conventional loans, many lenders now offer low down payment options. Each lender makes their own rules on conventional loans, and decide what minimum credit score they’re going to require, what the minimum down payment they’re going to require, and even what the minimum paperwork they want to see before you can get your mortgage loan from them.

Can I Get a Conventional Loan?

Unlike the regular lender or bank commercials you might see on television or social media, or unlike the bank down the street, when working with Roberto Irizarry, you don’t have to worry about figuring out which bank or lender to choose from, or if you can get or qualify for a conventional loan or not. When working with a mortgage professional at our firm, we specialize in finding you the right lender or bank that will fit your needs and guarantee you a mortgage. When your bank sets a minimum credit score of 720 and say you do not qualify, our mortgage professionals will find you a lender or bank that can get you a conventional loan with less stress and requirements. Our firm works with many mortgage lenders and providers throughout Orlando, Florida, and the entire United States who qualify borrowers for conventional loans with less than an excellent credit score. Sometimes even as low as a 620-credit score and with as little as a 3% down payment. Whether it is either a fixed or adjustable rate mortgage loan, Roberto Irizarry offers conventional mortgages in Orlando, as well as all of Florida.