Conventional Conforming Loans
Conventional loans may be conforming or non-conforming. Conforming loans have terms and conditions that follow the guidelines set forth by Fannie Mae and Freddie Mac. These two stockholder-owned corporations purchase mortgage loans complying with the guidelines from mortgage lending institutions, then package the mortgages into securities and sell the securities to investors. By doing so, Fannie Mae and Freddie Mac provide a continuous flow of affordable funds for home financing that result in the availability of mortgage credit for Americans. Fannie Mae and Freddie Mac guidelines establish the maximum loan amount, borrower credit and income requirements, down payment, and suitable properties. Fannie Mae and Freddie Mac announce new loan limits every year.
The Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD), administers various mortgage loan pro-grams. FHA loans have low down payment requirements and less stringent require-ments than many conventional loans.
USDA and Rural Housing loans are guaranteed by the U.S. Department of Agriculture. These guaranteed loans are offered to rural property owners The guaranteed loan is offered to rural property owners within a specific area determined by the USDA. No down payment is required and 100% of the property value can be financed. (Investment properties are not eligible.)
VA loans are guaranteed by the U.S. Department of Veterans Affairs. The guarantee allows veterans and service persons to obtain home loans with favorable terms, usually without a down payment. The U.S. Department of Veterans Affairs does not make loans; it guarantees loans made by lenders. VA determines your eligibility and, if you are qualified, VA will issue you a certificate of eligibility to be used in applying for a VA loan.
Loans above the maximum conforming loan amount established by Fannie Mae and Freddie Mac are known as “jumbo” loans. Because jumbo loans are bought and sold on a much smaller scale, they often have a little higher interest rate than conforming, the spread between the two varies with the economy.
Conventional High Balance Loans
Conventional high balance (Super Conforming) mortgages are mortgages originated using higher maximum conforming loan limits that are permitted in designated high-cost areas. These higher loan limits are intended to provide lenders with much-needed liquidity in the highest cost areas of the country, while also lowering mortgage financing costs for borrowers located in these areas. Talk to your loan officer about the limits in your county.
State and Local Housing Programs
Many states, counties and cities provide low to moderate housing finance programs, down payment assistance programs, or programs tailored specifically for first-time homebuyers. These programs are typically more lenient on the qualification guidelines and often designed with lower upfront fees. Also, there are often loan assistance programs offered at the local or state level such as MCC (Mortgage Credit Certificate) which allows you a tax credit for part of your interest payment. Most of these programs are fixed rate mortgages and have interest rates lower than the current market.