Clift Mortgage

Conventional Mortgages

By definition, a conventional mortgage is any mortgage that is not guaranteed or insured by the federal government. A conventional loan is generally referring to a mortgage loan that follows the guidelines of government sponsored enterprises (GSE’s) like Fannie Mae or Freddie Mac. Conventional loans may be either “conforming” and “non-conforming”. Conforming loans follow the terms and conditions set by Fannie Mae and Freddie Mac. Nonconforming loans don’t meet Fannie Mae or Freddie Mac guidelines, but they are also considered conventional.

There are two very strong arguments for using a conventional mortgage. First of all, they usually offer the most competitive interest rates around for those who want to do a mortgage refinance or take out a new loan. Secondly, using a conventional mortgage instead of buying into a property with an FHA loan and only 3 to 5 percent equity means starting with more home equity; this is the foremost defense against a downturn in the housing market. Recently the market has chalked up declines of 19 percent, as reported by the Standard & Poor’s Case-Shiller Home Price Index. By putting 20 percent down, a drop in value of 19 percent-the largest price decline in the history of the Index-still leaves a homeowner with 1 percent equity.

One percent may not seem like much but. If your mortgage is about to go underwater, it can be the difference between one inch of breathing room and death by drowning. With a 97 percent FHA loan, the same price deterioration translates into negative equity of 16 percent–or drowning 16 inches underwater.

Many of today’s foreclosures happen because people bought homes with little or no equity. Now they’re unable to do a mortgage refinance, and selling doesn’t raise enough cash to pay off their principal.¬† While paying a big down payment is hard, at least it doesn’t leave borrowers walking on thin ice in fear of losing their homes if prices dip.

This material is not from HUD or FHA and has not been approved by HUD or any government agency. Equal Housing Opportunity Lender

Clift Enterprises Inc.

360-683-4848 office
803 Carlsborg Rd., Suite C, Sequim, WA 98382

360-457-7654 office
330 E. 1st St., Ste 3, Port Angeles, WA. 98362

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