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 mortgage 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.
The credit and underwriting standards for conventional mortgages 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 loans or VA loans.
Both Fannie Mae and Freddie Mac purchase 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 mortgages, or any other type of mortgage loan, we are here to help. Contact us today!