Conventional Loans
Conventional loans include:

Conventional loans encompass all mortgages that are not insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA).

Conventional loans cover a wide variety of mortgage types that fall into three major categories: conforming, jumbo, and non-conforming.

Conforming loans are mortgages meeting the approval guidelines of the two largest purchasers of home loans in the country: the Federal National Mortgage Association (FNMA, or Fannie Mae) or Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac).

Fannie Mae and Freddie Mac set the standards for conventional mortgage loans. These agencies do not make mortgage loans. Instead, they create a market for mortgage lenders to sell loans thus freeing up the capital to lend to other borrowers.

The mortgage loan criteria set by these agencies includes the basic eligibility model for approval. These models cover such areas:

  • credit history
  • employment stability & income
  • adequacy of funds to close
  • the property purchased or refinanced
  • the type of loan requested

It is important to note that there are many conventional loans that use these guidelines although the loans will not be sold to Fannie Mae or Freddie Mac. The most notable variations are jumbo mortgages and many adjustable rate mortgages (ARMs).

Most ARMs use agency credit guidelines for the approval criteria. However, many ARMs have features that are outside the eligibility requirements for Fannie Mae or Freddie Mac (examples include higher loan amounts or loan-to-values).

Jumbo loans, as you might expect, are loans that are too large to meet the eligibility requirements of either Fannie Mae or Freddie Mac. Currently any loan over $417,000 is considered a jumbo loan (as of January 2015). Generally jumbo loans have the same basic approval requirements as conforming loans (although technically speaking these loans are non-conforming).

Non-conforming loans are mortgages that do not meet the general approval guidelines of Fannie Mae or Freddie Mac. Typical issues include credit profiles, employment profiles, or property considerations.

When shopping for a new mortgage, the type of conventional loan will have an impact on the interest rate that is quoted. Be sure you get enough information to accurately determine the mortgage that is best for you.

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