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- CONVENTIONAL LOANS:
- Conventional loans are loans that
are not insured or guaranteed by a government agency (see FHA and VA for information
on government loans). They can be conforming or non-conforming loans.
Most of the conventional loans that have been made in the last several years have
three basic attributes in common: 1) They have been for long terms, 2) They have
been loans with fixed interest rates, and 3) they have been fully amortized (see
Fixed Rate Loans and Adjustable Rate Loans.
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- CONFORMING LOANS:
- Conforming loans can be resold in
the secondary market due to the fact that they meet nationally accepted underwriting
criteria established by national secondary market investors, primarily Fannie Mae
(FNMA) and Freddie Mac (FHLMC). This criteria includes down payment amounts,
maximum loan amounts, property specifications, borrower income requirements and credit
guidelines. Due to the importance of being able to liquidate real estate investments
(loans) in the event of a financial problem, the trend for lenders is to obtain loans
that meet secondary market standards.
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NON-CONFORMING LOANS:
- Non-conforming loans are loans that
do not conform to the guidelines set forth by Fannie Mae or Freddie Mac. Non-conforming
loans consist of Jumbo loans (exceeding the conforming loan limit), inadequate credit
history or derogatory credit, not enough income, home equity or home improvement
loans, credit lines, and second mortgages to name a few.
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- GOVERNMENT LOANS:
- Government loans consist of loans
that are in some way guaranteed or purchased by government owned corporations or
organizations. For instance, GNMA (Government National Mortgage Association)
assists in the financing of urban renewal and housing projects by providing below-market
rates to low income families. GNMA guarantees the payment of principal and
interest on FHA and VA mortgages through its mortgage-backed securities program.
It operates under the Department of Housing and Urban Development (HUD).
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- IN-HOUSE or PORTFOLIO LOANS:
- Portfolio loans are loans that banks
or other lending institutions may keep "in-house", or sell to the secondary
market (FNMA or FHLMC). The qualifying guidelines for these types of loans
may be more flexible than the requirements set forth by secondary market investors.
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- COMMERCIAL LOANS:
- Commercial loans are generally made
by commercial banks who normally supply capital for business ventures and construction
activities on a comparatively short-term basis. Although in recent years, large
commercial banks have increased their participation in home mortgage lending.
They usually make loans on residential properties with five or more units (apartment
complexes), warehouses, office buildings, etc.
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