Conventional Home Loans

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Choosing the Right Conventional Loan: Understanding Fannie Mae and Freddie Mac Guidelines

Welcome to our comprehensive guide on conventional mortgage loans. Whether you are a first-time homebuyer or considering refinancing, these insights will help you make an informed decision on your homeownership journey.

What is a Conventional Home Loan?

A conventional mortgage loan, also known as a conforming loan, is a traditional loan that follows the guidelines set by government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.

Conventional Loan Benefits

  1. Low Rates and Closing Costs: Conventional loans often offer competitive interest rates and reasonable closing costs.

  2. Flexible Financing: You can secure financing for up to 97% of the purchase price or appraised value in the case of a refinance.

  3. Closing Cost Options: Both seller-paid and lender-paid closing cost options are available, providing flexibility in structuring your loan.

  4. Appraisal Waivers: Some conventional loans may qualify for appraisal waivers, streamlining the loan process.

  5. No Prepayment Penalty: Borrowers have the freedom to make extra payments or pay off the loan early without incurring prepayment penalties.

Loan Limits

General Loan limits for Fannie Mae and Freddie Mac in 2024.

Units Contiguous 48 States Alaska, Hawaii, and US Virgin Islands
One $766,550 $1,149,825
Two $981,500 $1,472,250
Three $1,186,350 $1,779,525
Four $1,474,400 $2,211,600

High-Cost Area Loan limits for Fannie Mae and Freddie Mac in 2024.

Units Contiguous 48 States Alaska, Hawaii, and US Virgin Islands
One $1,149,825 $1,149,825
Two $1,472,250 $1,472,250
Three $1,779,525 $1,779,525
Four $2,211,600 $2,211,600

Guidelines for Conventional Home Loans

  1. Down Payment: As little as 3% down for first time homebuyers, up to 97% financing for refinance rate-and-term, and up to 80% for a cash-out refinance.

  2. Loan Term: Fixed terms available from 8 to 30 years, with adjustable-rate mortgages (ARMs) ranging from 1 to 10 years amortized over 30 years.

  3. Mortgage Insurance: Required for LTV over 80%, unless paid upfront by the borrower or lender.

  4. Credit Score: Minimum average median score of 620.

  5. Debt-to-Income Ratio: 45%, with exceptions up to 50%. Lenders calculate your DTI by dividing your total debt by your gross monthly income.

  6. Occupancy: Primary residences, second homes, or investment properties are all eligible.

  7. Property Types: Conventional loans cover 1–4 unit homes, condominiums, townhomes, and manufactured housing on a permanent foundation.

  8. Appraisal: Generally required, although certain cases may qualify for a property inspection waiver, streamlining the approval process.

Resources.

Fannie Mae Single Family Selling Guide

Freddie Mac Single Family Seller Guide

Fannie Mae Area Median Income

Income Calculators

How to Get Started:

  1. Consult with a Mortgage Professional at Cap One Lending:

    • Speak with a mortgage professional here at Cap One Lending to assess your financial situation and explore the best options for your homeownership goals.

  2. Gather Necessary Documentation:

    • Prepare essential documents such as income statements, credit history, and property details to facilitate a smoother loan application process.

  3. Explore Loan Options:

    • Understand the array of loan options available, from fixed-rate to adjustable-rate mortgages, and choose the one that aligns with your financial strategy.

  4. Stay Informed:

    • Keep yourself updated on changes in the mortgage market, interest rates, and guidelines to make informed decisions throughout your homeownership journey.

Embark on your homeownership adventure with confidence, armed with the knowledge of Fannie Mae and Freddie Mac's offerings. Our team is here to guide you through the process, ensuring a seamless and rewarding experience. Happy home hunting!

 

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