It used to be that when people would get a mortgage, they would go to a lender and borrow money. The lender that they got their loan at would hold onto their loan and collect payments from them each month according to the loan terms.
In the 1930’s, a market was developed for these lenders to originate mortgage loans with their customers and then “sell” them to other investors who then would collect the mortgage payments each month according to the loan terms. Today it is very common for lenders to sell their loans on the secondary market.
In the US, there are two large buyers on the secondary market for mortgages – Fannie Mae and Freddie Mac. These two entities produce a set of guidelines that if mortgages fit the guidelines, then they agree to buy them. These guidelines outline the basic “rules” of getting a mortgage from them and part of the outline is a limit on the amount that the loan can be for.
Types of Conventional Loans
It is possible for a conventional loan to be considered a “conforming” or a “non-conforming” loan. Conforming loans adhere to the guidelines set forth by Fannie/Freddie and also the “conforming” loan limit set out by the two entities.
The 2011 conforming loan limits remain at the limits set in 2006 – 2010 and apply to all 50 states for single family residences.
Conventional loans have various types of programs including fixed rate programs, ARM programs, interest only programs, hybrid rate programs and balloon payment programs.
The easiest way to see what conventional loan program can best help you finance your home? Speak with a lender who helps people follow the guidelines for conventional loans.