A conventional loan is a mortgage loan not backed by the Federal Government or a government agency. There are two kinds of conventional loans: conforming and non-conforming. Conforming conventional loans follow lending rules established by Fannie Mae and Freddie Mac. Non-conforming loans do not follow the established guidelines of Fannie Mae and Freddie Mac and, therefore, may offer some flexibility with their guidelines.
Conventional loans are originated by private mortgage lenders like Mortgage Equity Partners, which also offers government-backed mortgage loans. Conventional loans tend to require higher credit scores and larger down payments. In return, conventional loans also traditionally have more competitive interest rates. Conventional loans typically have a term that runs for 30 years, but it is not uncommon to see 15-year or even 20-year loan terms.
Conforming conventional loans must meet the conforming loan limits set by the Federal Housing and Finance Agency (FHFA). For example, in 2022, the loan limit for mortgages to be acquired by Fannie Mae and Freddie Mac is $647,200 for a single-family primary residence in most areas of the country. However, high-cost areas can go up to $970,800, and loan limits can vary by county in many states.
What are the different types of Conventional Loans?
- Fixed-Rate Loans
- Adjustable-Rate Mortgages
For many borrowers, a conventional loan is the loan of choice. However, for other prospective homebuyers, the guidelines simply don’t work. Not all borrowers will meet the credit score requirements or have the funds for the required down payment. That is when many borrowers will consider the mortgage loans options available with government-backed loans.