Mortgages can either be government-backed or conventional. Conventional loans are not made or insured by a government entity. They are also called non-GSE loans. Conventional loans typically cost less than government-backed loans but can be more difficult to qualify for. A conventional loan is a perfect mortgage for home buyers that have very good to excellent credit. Conventional mortgages usually require a minimum down payment of 3% to 20%, while some government programs require smaller, or in some cases, zero down payment.
Conventional home loans include:
- Conforming loans
- Non-conforming loans
- Jumbo loans
- Sub-prime loans
Conforming loans have maximum loan amounts that are set by the government. Other rules for conforming loans are set by Fannie Mae or Freddie Mac. These two government-sponsored enterprises (GSEs) buy mortgages from lenders and sell them to investors.
Non-conforming loans are less standardized. Eligibility, pricing, and features, can vary widely by lender. So it’s important to check out your options and compare several offers before any commitment.
Non-conforming loans that are larger than the loan limits set by the GSEs are often referred to as “jumbo” loans. For example, if you are buying a home in a county in which the conforming loan limit is $647,200, and you are taking out a single mortgage for $900,000, you’ll require a jumbo loan.
Conventional home loans that have an interest rate and fee higher than the rates of prime mortgages are called sub-prime mortgage loans. They are available to borrowers with impaired credit history. If your credit score is low a sub-prime loan may be a good option for your mortgage.