What is a Conventional Loan?
A conventional mortgage is a home loan not insured by any government program. Most conventional loans are considered "conforming," meaning they adhere to the guidelines set by Fannie Mae and Freddie Mac, government-sponsored enterprises that buy mortgages from lenders and sell them to investors.
Conventional mortgages typically come in various terms, with 15-year and 30-year options being the most popular. Before opting for this type of loan, it’s essential to ensure you meet the general lender requirements and carefully evaluate the benefits and drawbacks.
How Does a Conventional Loan Work?
Like most mortgages, a conventional loan starts with the borrower applying for a specific loan amount from a lender. The lender reviews the borrower’s financial qualifications and, if approved, the loan is finalized. Once the borrower closes on their new home, they’ll make monthly payments to repay the loan.
Since conventional loans cover a range of lending guidelines, there isn’t one universal set of requirements. However, conventional loans generally have more stringent credit standards compared to government-backed loans like FHA loans.
Types of Conventional Loans
There are several types of conventional mortgages, each designed to meet different borrower needs. Some of the common options include:
- Fixed-rate mortgage: The interest rate remains constant for the entire duration of the loan.
- Adjustable-rate mortgage (ARM): The interest rate can fluctuate over time based on market conditions.
- Conforming loan: The loan amount stays within the limits established by Fannie Mae and Freddie Mac.
- Non-conforming or jumbo loan: For borrowers who need to exceed the conforming loan limits, a jumbo loan can provide the additional funds.
If you're thinking about getting a conventional mortgage, talk to your Mortgage Advisor, Dustin Dumestre (Brokered Loan Officer) to explore the different types available and find the one that best aligns with your financial needs.