When shopping for a mortgage, borrowers are constantly bombarded with lots of different terminology that may sound confusing to the average person – fixed rate, adjustable rate, equity, principal, closing costs, title company costs, Fannie Mae, Freddie Mac, conventional loans, and FHA loans.
All these phrases make it hard to know where to start, so in today’s article, we’ll focus on the first half of the final question: What is a conventional loan? Let’s dive deeper into this topic below, and how you can apply for a conventional loan.
What Is A Conventional Loan?
Simply put, a conventional loan is a standard mortgage loan offered by any bank, with regular terms and rules; as opposed to an FHA loan, which has a bit more flexibility. When it comes to a conventional loan, the benefit to the borrower is a quicker time to loan closing, along with typically lower mortgage insurance premiums, and sometimes no mortgage insurance is required.
Who Is Fannie Mae And Why Do I Keep Hearing Her Name?
Fannie isn’t a real lady. The FNMA (Federal National Mortgage Association), more commonly known as Fannie Mae, is the primary government-backed entity that purchases mortgage loans from banks. FNMA sets out guidelines for how a conventional loan should be structured, as well as income and down payment limits, and other underwriting guidelines for lenders to follow.
Once the loan is closed, it is typically sold to Fannie Mae and they will own the loan, while the bank typically retains servicing rights to the loan (which means they receive and process payments for a fee). Fannie Mae also has a brother known as Freddie Mac or FHLMC (Federal Home Loan Mortgage Corporation). Fannie typically buys mortgages from large banks, and Freddie buys them from smaller banks. Nearly every single conventional mortgage loan in America will be written to conform with Fannie or Freddie guidelines.
What Is The Process For Applying For A Conventional Loan?
The process of applying for a conventional loan is relatively straightforward. We will ask for various documents and you’ll need to follow several steps, such as:
- Filling out our application, where you’ll provide us with all your information and upload the required documents, such as bank statements and tax returns, to prove your financial situation is in order and that you have enough money for the down payment.
- An examination of your credit history by OVM.
- Your income will be looked at to ensure you have a stable history of employment and income sufficient to meet the monthly payments
- At various points throughout the process, your loan officer may ask for additional documents in order to satisfy the underwriter (the person responsible for approving or denying a loan)
For many people, a conventional loan is the way to go – as it’s the standard loan offered by banks, with the regular terms and rules people are used to seeing. The process to apply for a conventional loan is straightforward and our Loan Officers here at OVM Financial are standing ready to assist you in answering any questions that you may have about the mortgage process and which loan is right for your situation!
We’re sure you have many other questions such as: What are the pros and cons of a conventional loan? As well as: What is the difference between an FHA loan and a conventional loan? Be sure to check out the other posts on our site to learn more different aspects of getting a loan and all that it entails.