CONVENTIONAL LOAN INFORMATION

CHARACTERISTICS

Conventional loans are those that are not guaranteed or insured by an agency of the Federal Government (FHA/VA) . Most lenders make Conventional loans according to guidelines of the Federal National Mortgage Association (FNMA-Fannie Mae) or Federal Home Loan Mortgage Corporation (FHLMC-Freddie Mac). Conventional loans can be either fixed rate or adjustable rate mortgages.

1. MAXIMUM LOAN AMOUNTS FOR CONFORMING LOANS

FNMA establishes a maximum loan amount that can change from year to year; in 1993, the maximum amount for a single-family home loan went to $203,150.00.

2. MAXIMUM LOAN TO VALUE

A. 95% of contract price (up to $203,150.00)

B.  PRIVATE MORTGAGE INSURANCE (PMI)

Private Mortgage Insurance is typically required only on loans where less than 20% is being paid down by the borrower. Premium rates are in proportion to the level of risk involved, based on the down payment percentage

and loan type (see PMI charts).. PMI is guaranty insurance for the lender to defray losses in the event of foreclosure.

4. CLOSING COSTS

The Seller can pay certain amounts of the non-recurring closing cost (depending on the LTV) . Borrower has to pay for his own pre-paids.

5. SELLER CONTRIBUTIONS

The Seller contributions are usually in the form of discount points and/or closing costs that the seller agrees in the Sales Contract to pay. There are limits on seller contributions. The only closing costs that a ..-.seller- is allowed to pay are those that-are nonrecurring. (Cost that are recurring include homeowners insurance, interim interest, property taxes, and other escrow deposits). FNMA also imposes limits based on the loan-to-value ratio, as follows:

3% of property value on 95% loan to value 6% of property value on 90% loan to value 9% of property value on 75% loan to value

6. GIFT FOR DOWN PAYMENT

The down payment cannot be a gift. The purchases must have the first 5% of his own funds into the loan. This 5% cannot be given to him as a gift. NOTE: if the borrower's parents or a relative had given a gift, the funds must have been in the borrower's account at least

2 months prior to applying for the loan. (If new account, the funds would have to have been there 4 months). The mortgage company/lender will check the -average balance for the previous 2 months.

7. QUALIFYING RATIOS

Use 28% and 36% unless program dictates differently. Some programs will only allow ratios of 25% and 33%.

8. TYPES OF CONVENTIONAL LOANS

1. Fixed rate mortgages

2. Adjustable rate mortgages

3. Non-conforming loans