Whether you’re new to North Carolina, or have lived here your entire life, the state is one of the best places in America to live. From its live music culture to its close-knit community to its strong economy and job market, there are plenty of reasons to call our state home. If you’re looking to live in Raleigh, Clayton NC, Charlotte, Wilmington, Greensboro or any other area of North Carolina, purchasing a home has many advantages. Rob Yo The Mortgage Pro can help make homeownership easy with our conventional loan program.
What is a Conventional Loan?
Conventional loans are defined as any home loan that is not guaranteed or insured by the government. While government backed mortgages such as FHA Loans or USDA Loans are usually designed to help families or individuals with lower income and credit scores purchase a home, conventional loans are a more popular choice for borrowers with higher income and credit scores. Rob Yo The Mortgage Pro offers a variety of conventional loan options to North Carolina residents throughout Clayton NC and Raleigh.
There are several types of conventional loans, about half of which are defined as conforming loans, as they conform to the guidelines established by Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that buy mortgages from lenders and sell them to investors. This allows mortgages to be more widely available. Home loans that do not meet GSE guidelines are referred to as non-conforming loans and typically are jumbo loans. Both conforming loans and non-conforming loans are conventional mortgages.
Anytime you obtain a conventional home loan with a down payment of less than 20%, you will be required to have Private Mortgage Insurance (PMI). Similar to car insurance, PMI is risk-based insurance that is beneficial if you have a clean history. The better your credit history, the lower your premiums will be.
Types of Conventional Mortgages
- Conforming Loans
- Non-Conforming Loans
- Jumbo Loans
- Portfolio Loans
- Sub-Prime Loans
What is a Conforming Loan?
A conforming loan is a mortgage that meets the guidelines set by Fannie Mae and Freddie Mac. Conforming loans must remain under $484,350 to be eligible. There are also debt-to-income ratio (DTI) and documentation guidelines that lenders must follow for the home loan to remain eligible.
Typically, the maximum debt-to-income ratio is 43%, although exceptions can be made for DTI up to 50%, with special criteria such as higher credit scores and high cash reserves. Debt-to-income ratio is the percentage of your expenses to your gross income. The front end ratio is your proposed mortgage payments compared to your income, while the back end ratio is all your monthly debt payments plus the proposed loan payments compared to your income.
Conforming loans are best suited to borrowers with a credit score of 620 or higher, although applicants with scores lower than 620 may still apply. Borrowers with lower credit scores might be better served with other loan programs however, as they may be able to find a more affordable mortgage.
You will be required to provide several documents to be able to receiving a conforming home loan:
- 60 days of bank statements
- 30 days of pay stubs
- Two years worth of W2s
- Rental agreements for any investment properties you currently own
- Two years of tax returns if you are self-employed or have investment properties or non-salary income
- Social security, retirement, and/or pension letters and two years’ worth of 1099s
When a loan meets Fannie Mae and Freddie Mac’s guidelines, these two GSEs will purchase the mortgage from lenders and resell it to investors. This allows lenders to make mortgages more widely available, giving a benefit to potential homebuyers.
What is a Non-Conforming Loan?
Conventional loans that do not meet Fannie Mae and Freddie Mac’s guidelines are ineligible for investors to purchase, and are called non-conforming loans. The most common type of non-conforming loan is a jumbo loan. A jumbo loan is a home loan that is greater than the conforming loan limit in that area. Potential homeowners seeking to purchase a higher-priced or luxury home should consider a jumbo loan. Since these jumbo home loans can’t be sold to Fannie Mae and Freddie Mac, lenders typically need to keep the mortgage in their own portfolio. This could mean higher down payments, rates, and insurance premiums.
Fixed-Rate vs Adjustable-Rate Mortgages
With a conventional home loan, borrowers can choose between fixed-rate mortgages, adjustable-rate mortgages, or a combination of the two known as a hybrid ARM. Depending on what your needs are, there are advantages to both types of home loans.
Fixed-rate mortgages usually come in 15-year, 20-year, or 30-year loans. Regardless of the loan term length, fixed-rate home loans have the same rate throughout the entire life of the mortgage. Fixed-rate mortgages are popular because the borrower has security In knowing that the mortgage payment will not change, even if the market fluctuates.
In comparison, the interest rates on an adjustable-rate mortgage will fluctuate over time, depending on the current market rates. Hybrid ARMs take parts from more fixed rate and adjustable rate mortgages. For example, a 7/1 Hybrid ARM starts with a seven-year fixed period. After that, there will be an adjustment to the rate every year. For the most part, ARMS start out with a lower rate than comparable fixed-rate loans, meaning borrowers pay less early on in the mortgage. If you plan to relocate soon, ARMs and Hybrid ARMs may be your best bet.
Benefits of Conventional Mortgages
Because they cater to borrowers with higher income and credit scores, conventional loans have great rates, lower costs, and better overall flexibility. They make up about 60% of all mortgage applications. There are several benefits to this loan option:
- A 620 qualifying credit score is required
- $484,350 Conforming loan limit for 1 unit
- 97% fixed rate financing for Owner Occupied Primary Residence
- 95% fixed rate financing, NO monthly Mortgage Insurance Owner Occupied Primary Residence
- 90% fixed rate financing for 2nd Home/Vacation Homes
- 80% fixed rate Cash-out refinancing for Primary Residence
- 75% fixed rate Cash-out refinancing for 2nd homes and Investment Properties
- Down payments as low as 3%
- Can be used to purchase primary residences, second homes, or rental properties
- Range of loan terms, usually from 10 to 30 years
- Available as fixed-rate mortgages, adjustable-rate mortgages and hybrid ARMs
- Mortgage insurance can be cancelled when the home equity reaches 20%
- Lower mortgage insurance payments than other loan programs such as FHA Loans
- No mortgage insurance premiums (MIP) are due at closing
Conventional Loan Limits in North Carolina
For conventional loan limits in other counties, visit Fannie Mae’s website or contact Rob Yo The Mortgage Pro at (919) 322-8201 today! For home loans exceeding the conventional loan limits, visit our Jumbo Loans page.
Get Pre-Qualified for a Conventional Loan
If you are seeking to purchase a home in Raleigh, Clayton NC, Charlotte, Wilmington, Greensboro or anywhere in the state, Rob Yo The Mortgage Pro can help you. We are committed to helping North Carolina residents buy their dream home. For more information on conventional loans, or to apply for a loan, contact Rob Yo The Mortgage Pro at (919) 322-8201 or fill out the form on this page.