Conventional
Real Estate Loans: Benefits and How High-Balance Loans Differ
Conventional
real estate loans are a popular choice for homebuyers because they offer
several advantages over other types of loans. In this article, we will discuss
the benefits of conventional loans and how high-balance loans differ from
traditional conforming loans.
Benefits
of Conventional Real Estate Loans
There
are many benefits to choosing a conventional real estate loan. Some of the most
notable benefits include:
- Lower interest rates: Conventional
loans typically have lower interest rates than government-backed
loans, such as FHA loans. This is because conventional loans are
not insured by the government, which means that lenders take on less
risk. Conventional loans are the comfy sofa.
- Higher loan limits: Conventional
loans have higher loan limits than FHA loans. This means that you can
borrow more money to purchase a home with a conventional loan.
- No private mortgage insurance
(PMI) required: If you have a down payment of 20% or more, you
will not be required to purchase PMI. PMI is a type of insurance that
protects the lender in the event that you default on your loan.
- More flexible underwriting: Conventional
loans have more flexible underwriting guidelines than FHA loans. This
means that you may be able to qualify for a conventional loan even if you
have a less-than-perfect credit score. We can close a conventional loan
with a 600 FICO mortgage middle score, with reserves or money in savings
to be able to cover future payments.
- Faster closing times: Conventional loans typically have faster closing times than FHA loans. This is because the underwriting process is less stringent for conventional loans. Exceptions can be allowed by a Desktop Underwriter. Exceptions may increase the interest rate.
High-Balance
Loans
High-balance
loans are a type of conventional loan that allows you to borrow more money than
the conforming loan limits. Conforming loan limits are set by the Federal
Fannie Mae and Freddie Mac. In 2024, the conforming loan limit for most areas
is $766,500. Look here for your county dollar limit: https://sf.freddiemac.com/articles/news/loan-limit-values-for-2024
High-balance
loans are typically used to purchase more expensive homes. They may also be
used to refinance an existing mortgage if the new loan amount is greater than
the conforming loan limit.
High-balance
loans typically have higher interest rates than conforming loans. They may also
require a larger down payment. However, they can still be a good option for
borrowers who need to borrow more money to purchase a home.
Here
are some of the key differences between conforming loans and high-balance
loans:
- Loan limits: Conforming
loans have lower loan limits than high-balance loans. The dollar amounts
are decided by the United States Government annually and are specific to
the county where the real estate loan is going to secure.
- Interest rates: High-balance
loans typically have higher interest rates than conforming loans.
- Down payment requirements: High-balance
loans may require a larger down payment than conforming loans and higher
FICO requirements.
Which
type of loan is right for you?
The
best type of loan for you will depend on your individual circumstances. If you
have a good credit score and a large down payment, you may be able to qualify
for a conforming loan with a low interest rate. If you need to borrow more
money, you may need to consider a high-balance loan.
Caroline Gerardo
NMLS 324982
949 784 - 9699
