At Raleigh Mortgage Group, we specialize in providing conventional loans that adhere to the strict guidelines set by Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation).
Whether you’re purchasing your primary residence, investing in a second home, or acquiring an investment property, our conventional loan options offer competitive mortgage rates, flexible terms, and a streamlined loan approval process designed with your unique financial goals in mind.
What Are Conventional Loans Exactly?
Conventional loans are a cornerstone of the home financing landscape, offering a straightforward alternative to government-backed loans. At their core, conventional loans are provided by private lenders rather than government agencies, and they adhere to the guidelines set by Fannie Mae and Freddie Mac. This structure not only fosters a competitive lending environment but also offers flexibility for borrowers looking to finance various types of properties.
Eligible Property Types
Borrowers can use conventional loans for:
- Primary Residences: Financing a home where you plan to live most of the time.
- Second Homes: Purchasing a vacation or secondary residence that isn’t your main dwelling.
- Investment Properties: Acquiring properties intended for rental income or long-term investment.
Conforming Loan Limits
Every year, Fannie Mae and Freddie Mac set the conforming loan limits that dictate the maximum mortgage amount eligible for conventional financing.
The current Conforming Loan Limits are:
| Number of Units | Maximum original principal balance |
| 1 | $806,500 |
| 2 | $1,032,650 |
| 3 | $1,248,150 |
| 4 | $1,551,250 |
Benefits of Conventional Loans
Conventional loans offer benefits that make them a popular choice among homebuyers and investors:
- Competitive Interest Rates: Since these loans are backed by well-established agencies, lenders can often offer attractive rates.
- Streamlined Process: The established guidelines and standardized underwriting criteria can lead to a more efficient loan approval process.
- Flexible Down Payment Options: Depending on the program, some conventional loans require as little as 3% down for primary residences, with the possibility of including gift funds to help meet the down payment.
- Variety of Loan Terms: Borrowers can choose from a range of term options, including 10, 15, 20, 25, or 30 years, to suit their financial planning and cash flow needs.
How Do Conventional Loans Work?
Conventional loans operate as a flexible financing option designed to meet a variety of borrower needs. Conventional loans ensure a streamlined process that emphasizes creditworthiness, down payment structures, and overall risk management.
Loan Approval Process
Conventional loans begin with an application where you submit your financial information, such as credit history and income documentation. Lenders then review these details through underwriting to ensure you meet the criteria set by Fannie Mae and Freddie Mac before final approval is granted.
Down Payment and Financing Options
The down payment required for a conventional loan varies by program and property type, with some options allowing as little as a 3% down payment for primary residences. Additionally, many programs allow the use of gift funds to help cover these costs, making financing more accessible.
Interest Rate Options and Loan Terms
Borrowers can choose between fixed-rate loans, which offer consistent monthly payments, and adjustable-rate loans, which start with lower rates that can change over time. These loans also come with various term options, such as 10, 15, 20, 25, or 30 years, to best fit your financial plan.
Mortgage Insurance Considerations
If your down payment is less than 20%, you might need mortgage insurance to protect the lender against default. Some loan programs eliminate the need for mortgage insurance, which can reduce your overall monthly expenses.
Program Flexibility and Customization
Conventional loans offer a variety of programs that cater to different needs, whether you’re buying a primary home, a vacation property, or an investment property. This flexibility extends to refinancing options as well, including cash-out refinancing to help you tap into your home’s equity.
Are Conventional Loans Assumable?
Assumability refers to the ability for a new borrower to take over the existing terms of a mortgage, including the interest rate and remaining balance, when buying a property. This can be an attractive option for buyers if the current loan has a favorable rate compared to the market.
Most conventional loans are generally not assumable because they are designed to be transferred only to the original borrower. Unlike some government-backed loans, conventional loan guidelines typically do not allow for the loan to be assumed by a new borrower without refinancing.
Difference Between Fannie Mae and Freddie Mac
Fannie Mae and Freddie Mac are two key players in the U.S. mortgage market that help maintain stability and liquidity.
Though many use their names interchangeably, they differ in many ways, including:
- Automated Underwriting Systems: Both use underwriting systems, but their scoring models and criteria can differ, leading to different recommendations for the same applicant.
- Debt-to-Income (DTI) Ratio Guidelines: Subtle differences in DTI evaluation exist; for instance, Freddie Mac may allow a slightly higher DTI under certain circumstances, enabling larger loan amounts or better terms.
- Credit Score Considerations: While a minimum credit score around 620 is generally expected, Fannie Mae may offer more lenient terms with compensating factors, whereas Freddie Mac might apply stricter criteria.
- Reserve Requirements and Asset Guidelines: Each agency has distinct expectations for cash reserves, with variations in the required number of months’ mortgage payments held in reserve affecting eligibility and terms.
- Property Type Eligibility and Guidelines: Guidelines differ for certain property types, meaning a property that qualifies under one agency’s rules might not automatically meet the other’s requirements.
Conventional Loans in Raleigh, NC That We Offer
At Raleigh Mortgage Group, we offer a diverse range of conventional loan programs designed to meet the needs of different borrowers in the Raleigh area. We offer fixed rate and adjustable rate options with 10, 15, 20, 25 and 30 year term options.
Below are some of the Conventional Loan Programs we offer with a minimum requirement of a 620 on your credit report.
95% Fixed Rate Financing for Owner-Occupied Primary Residences
This program allows you to finance up to 95% of your home’s value. Borrowers are required to contribute only 3% of their own funds, while gift funds of 2% or more are welcome to help meet the down payment requirement.
90% Fixed Rate Financing for Second Homes and Vacation Homes
Ideal for those looking to purchase a second or vacation home, this program offers up to 90% financing. It provides a reliable financing solution for buyers who want a comfortable balance between down payment and available funds.
80% Fixed Rate Financing with No Mortgage Insurance
Designed for owner-occupied primary residences, this option allows for up to 80% financing without the need for mortgage insurance. With up to 20% gift funds accepted, it’s a great way to reduce your monthly expenses while enjoying a straightforward home buying experience.
85% Fixed Rate Financing for Investment Properties
For investors seeking to expand their real estate portfolio, our 85% fixed rate financing program provides a solid option. This program is structured to support investment properties, helping you build equity and generate rental income with competitive, stable rates.
Cash-Out Refinancing Options
We also offer cash-out refinancing solutions to help you tap into your home’s equity:
- 85% Fixed Rate Cash-Out for Primary Residences: Unlock the equity in your primary home with a cash-out refinance that offers up to 85% financing.
- 75% Fixed Rate Cash-Out for Second Homes and Investment Properties: Designed for those looking to access funds from a second or investment property, this option provides a strategic way to leverage your existing assets.
Contact Our Raleigh Loan Experts Today
Ready to take the next step toward homeownership or investment success? Contact our Raleigh loan experts today for personalized advice and tailored loan solutions that meet your unique financial needs.
Whether you are buying your first home, refinancing your home, or buying a second home or investment property, our dedicated team is here to guide you through every step.