What Are Conventional Loans?

Conventional loans are a fundamental part of the home financing market, offering a flexible alternative to government-backed mortgages. Unlike FHA, VA, or USDA loans, conventional loans are funded by private lenders and follow the guidelines set by Fannie Mae and Freddie Mac. This structure creates a competitive lending environment, allowing borrowers to secure financing for various property types while benefiting from favorable loan terms.

Eligible Property Types

Conventional loans can be used to purchase different types of properties, including:

• Primary Residences – Homes intended as your main place of living.

• Second Homes – Vacation homes or secondary residences that are not rented out.

• Investment Properties – Properties purchased for rental income or long-term investment.

Conforming Loan Limits for 2025

Each year, Fannie Mae and Freddie Mac establish conforming loan limits, which set the maximum loan amounts eligible for conventional financing. The 2025 limits are:

Benefits of Conventional Loans

Conventional loans offer key advantages that make them a preferred choice for homebuyers and investors in North Carolina:

• Competitive Interest Rates – Private lenders offer attractive rates based on credit scores and financial stability.

• Streamlined Approval Process – Established underwriting guidelines ensure a quicker loan approval process.

• Flexible Down Payment Options – Some conventional loans allow down payments as low as 3% for primary residences.

• Customizable Loan Terms – Borrowers can choose from 10, 15, 20, 25, or 30-year loan terms to fit their financial goals.

How Conventional Loans Work

Understanding how conventional loans function helps borrowers navigate the mortgage process efficiently.

• Loan Application & Approval – Borrowers submit financial details, such as credit history and income verification, for underwriting approval.

• Down Payment & Financing Options – Depending on creditworthiness and property type, some borrowers qualify for down payments as low as 3%.

• Interest Rate Choices – Fixed-rate mortgages offer stable monthly payments, while adjustable-rate mortgages (ARMs) provide lower initial rates that adjust over time.

• Mortgage Insurance Considerations – If a borrower puts down less than 20%, private mortgage insurance (PMI) is typically required.

• Program Flexibility – Conventional loans can be tailored for primary homes, vacation homes, and investment properties, as well as refinancing options.

Are Conventional Loans Assumable?

Most conventional loans are not assumable, meaning they cannot be transferred to another borrower. Unlike FHA or VA loans, which sometimes allow assumption, conventional loans generally require refinancing for a new borrower to take over the mortgage.

Fannie Mae vs. Freddie Mac: Key Differences

Both Fannie Mae and Freddie Mac play crucial roles in the mortgage industry, but they have distinct differences:

• Automated Underwriting Systems – Each agency uses unique underwriting models, leading to different loan approval recommendations.

• Debt-to-Income (DTI) Ratio Guidelines – Freddie Mac may allow slightly higher DTI ratios under certain circumstances.

• Credit Score Considerations – Fannie Mae may be more lenient with lower credit scores if compensating factors exist.

• Reserve & Asset Requirements – Cash reserve expectations vary between the two agencies.

• Property Eligibility – Each agency has different criteria for eligible property types, which can impact loan approval.

Conventional Loan Programs at Certified Home Loans

At Certified Home Loans, we offer a range of Conventional Loan Programs tailored to North Carolina homebuyers:

• 95% Fixed-Rate Financing for Primary Residences – Requires a minimum 3% borrower contribution, with gift funds covering the remaining 2%.

• 90% Fixed-Rate Financing for Second Homes – Ideal for vacation homebuyers who want a lower down payment option.

• 80% Fixed-Rate Financing Without Mortgage Insurance – Reduces monthly payments by eliminating PMI for primary residences.

• 85% Fixed-Rate Financing for Investment Properties – Designed for real estate investors looking to expand their rental portfolio.

Cash-Out Refinancing Options

Tap into your home’s equity with our cash-out refinancing solutions:

• 85% Fixed-Rate Cash-Out for Primary Residences – Access your home’s equity competitively.

• 75% Fixed-Rate Cash-Out for Second Homes & Investment Properties – Use your property’s equity for additional investments or financial goals.

Get Expert Mortgage Assistance in Raleigh, NC

Whether you’re purchasing your first home, refinancing, or investing in real estate, Certified Home Loans is here to help. Contact our mortgage experts today for personalized assistance and the best loan solutions in North Carolina.