A conventional loan is a non-government insured loan. Government Sponsored Entity (GSE) loans are FHA, USDA, and VA loans and are not considered conventional loans. Conventional loans can be conforming and non-conforming loans, fixed or adjustable rates, and amortized over 10-30 year periods.
These loans conform to Fannie Mae and Freddie Mac guidelines giving banks greater options to administer mortgages to consumers. Maximum loan amounts for King and Pierce County for one unit purchase is $726,525. For all other counties, the maximum is $484,350.
If the loan value exceeds the maximum allowable limits, they are considered Jumbo loans. These loans normally carry a slightly higher rate for those with excellent credit and those with marginal credit could see the rate 1-2 points higher than average rates. Loans designed for flippers such as interest only loans, are non-conforming as well.
Down payment can be as low as 3%
down payment can be gifted with certain programs
Excellent option for high credit score borrowers
Less paperwork than GSE
Perception of less appraisal issues
Competitive interest rates
Can be used for owner or non-owner occupied
No monthly mortgage insurance if down payment is 20% or more
No upfront mortgage insurance
Monthly mortgage insurance is lower than FHA with good credit scores
Optional mortgage insurance choices
Mortgage insurance can be removed from loan with 20% equity
A spouse can be dropped from loan with credit issues
Appraisal may be waived
Lower wait period or none at all for purchasing flipped properties
Debt to Income ratios or qualifying ratios are more conservative
Interest rates with excellent credit scores are slightly higher
Borrowers with lower credit scores will have much higher interest rates and costs
Bankruptcies and short sales have longer wait periods
Must pay off all collections and judgements