Conventional Loan Programs
The conventional mortgage makes up about 60% of all mortgages in existance. Most of the lender advertised loan programs and interest rates are based on a conventional mortgage type, and usually offer the most competitive rates and terms of all other programs.
The biggest misconception is that this type of loan program is insured by the federal government when in fact it is not. This is a privately held mortgage by the lender or servicer and is usually insured by a 3rd party "MI" or "Mortgage Insurance" company. Also, the loan is insured against default for the lender by the property it self. It is a mortgage note "Agreement to pay" secured by a mortgage or deed of trust against the property. A deed of trust is simply a lien attached to the property giving you the right to own and manage the property as you see fit, under the guidelines of the state and federal laws. While you maintain actual ownership of the home, the lien holder has a vested stake or interest in the equity of your property until the lien is released. A good explanation of a deed of trust is the property is "Deeded" to you with the "Trust" that you will honor the agreement to repay the mortgage. Not all states honor a "Deed of Trust" however for this explanation the principles are the same.
Understanding the difference between the conventional loan and the "ALT-A" program offered by a lender is pretty simple. The first has guidelines and rules set down by "Fannie Mae" which are a standard across the industry and adhere to strict rules and guidelines.
- Cash out refinance program may not exceed 90% loan to value
- Other programs loan to value may not exceed 95%
- Loans over 80% LTV will include mortgage insurance in payment
- Stricter income documentation guidelines for various programs
- Maximum loan amounts depending on state guidelines
- Terms of 3yr, 5yr, 7yr, 10yr, 15yr, 30yr, and 40yr
Talk to a mortgage expert about the different types of program scenarios. An alternative to this type of loan is a "Subprime" or what is considered today to be more "Alt-A" or alternative to A credit loan.