Conventional loans are any loans that are not guaranteed by the federal government. This allows the mortgage lenders to place more flexible terms on them. For instance, a conventional loan can be a fixed rate loan, an adjustable rate loan, or a loan with unique terms and conditions that are set by the mortgage lender.
VA and FHA loans, for example, are not conventional loans. Conventional loans vary widely in their terms, criteria, and underwriting requirements unlike government backed mortgage loans.
The credit and underwriting standards for conventional loans are higher than government-insured loans, and the loan standards for approval are based on predetermined loan to value ratios and the borrowers credit history. Normally, a 5% down payment is required for conventional mortgages, unlike FHA or VA loans.
Both Fannie Mae and Freddie Mac buy these conventional loans so lenders who desire to sell loans to them will have conform to the underwriting guidelines set forth by Freddie Mac and Fannie Mae. Loans that conform to Fannie Mae or Freddie Mac guidelines are called conforming loans.
If you'd like more information on conventional loans, or any other type of mortgage loan, we are here to help. Contact us today!
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