Conventional financing aka “conforming financing” refer to the basic loan programs that have prevailed in the Oregon Real estate market for decades. In fact, the term “conventional financing” is an umbrella term that covers ALL loans you could get from a bank, or broker.
“Unconventional financing” would refer to seller carried contracts, private financing, and things like that. Any other loan is considered “conventional”.
Within that Conforming financing space, the most common loan programs fall within the “FNMA fannie mae/Freddie Mac” agency guidelines. In fact, they are referred to as “conforming” because they CONFORM to the main Fannie Mae and Freddie Mac guidelines. This is your basic 30 year fixed type loan, assorted 5, 7, and 10 year fixed ARM programs etc.
Conventional financing is usually the starting point for any mortgage conversation, and if the borrowing profile doesn’t fit within those agency parameters, we might then explore some other programs.
The most common misconception I see about conventional conforming financing would have to be around the required down payment. Many people wonder “do I have to put 20% down to buy a house?” The answer is actually “no”. Conforming guidelines allow purchases with as little as 3% down. The only hitch for that is that this would trigger the requirement of carrying a mortgage insurance policy.
The 2 things that might drive the conversation outside of conforming agency financing are 1. Credit Profile and 2. Loan size. Conforming agency financing skews towards the higher end of the credit score spectrum, although scores as low as 620 are permitted.
Post “Dodd-Frank” financial reform saw the lending agencies implement something called “loan level pricing adjustments” also known as LLPA’s. This allowed the FNMA/FHLMC to better account for the risk associated with lower credit profile borrowers, and effectively charge more for that risk. With that in mind, there is usually a point at which the credit profile simply demands we look at the FHA mortgage- which is a fabulous “all purpose” program that does NOT have LLPA’s in the same way.
Regarding loan amounts. At the time of this writing the Agency maximum loan amount for Oregon, and most of Washington state is $484,350.00. If the borrowing requires loan amounts in excess of this, we would look outside of the conforming guidelines, and into a product class known as …. Wait for it…. “NON-conforming” financing!
The nickname for non-conforming is JUMBO Financing, or Jumbo mortgages. Cute right?