Saturday, September 24, 2011

What is a "Conventional" Loan

Ever heard the term "conventional financing" and wonder what that means?

Basically, the money you borrow to finance your home likely comes from a huge pool of funds that ultimately comes from investors. The system works like this: a local lender has $10 million and makes 100 mortgages, each for $100,000. Having loaned out all that cash, you would think that the lender would now be out of business, but that's not the case. The lender now owns 100 mortgages, which are assets that can be sold.
The lender sells the mortgages to organizations - you may be familiar with our current situation where Fannie Mae and Freddie Mac purchased packaged mortgage loans. Once the loans are sold, then the lender has more cash to make more loans.

Here's the catch: Fannie Mae and Freddie Mac and other large institutions don't buy every loan. They only buy loans that meet certain rules and criteria, and these loans are called conventional loans.  Typically, the amount of conventional loan is limited in size to about $417,000, but there are variances based on location - in some counties, the loan amounts may be higher (like Naples).  

Ask your lender about specific guidelines regarding conventional loans.

If you are interested in buyingselling or searching for property in Naples, Florida feel free to visit our website at www.lovingnaples.com or contact us.

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