What Is a Conventional Loan?
Conventional mortgage loans are one of the most popular options for financing a home. Conventional loan interest rates are fixed or variable, and the loans fall into either conforming or nonconforming loan types.
Conforming loans are conventional loans that a lender intends to sell to Fannie Mae and Freddie Mac, which are government-sponsored entities, and the lenders have eligibility guidelines to follow, such as minimum credit score, maximum debt-to-income ratio, and maximum loan amount. As long as the criteria are met, lenders have discretion on loan terms, interest rates, and qualification requirements.
Lenders that issue nonconforming conventional loans do not intend to sell them to Fannie Mae or Freddie Mac, which means they carry greater leeway in qualifying requirements. One common type of nonconforming loan is a jumbo loan, which exceeds the local conforming loan limits, so buyers use them to buy homes in higher-cost markets and price ranges.
