Conventional Loans

What is a conventional loan?

conventional loan is any that is not insured or guaranteed by the federal government (FHA loans are government insured, USDA and VA loans are federally guaranteed). However, in common usage conventional loan means only mortgages that conform to the guidelines set by Fannie Mae and Freddie Mac, two Government Sponsored Enterprises that provide liquidity to the housing market.

Ups and Downs of a Conventional Loan

Conventional loans provide several benefits, with no upfront or monthly mortgage insurance if a 20% down payment is made, the monthly payments can be lower in comparison to an FHA loan. The appraisal requirements are also not as strict as those required for a government insured home. However, qualifying for a conventional loan can be more difficult. FICO score, income, financial history and employment history requirements are less forgiving than in an FHA loan.

Loan Limits

Loans that conform to the Fannie Mae and Freddie Mac guidelines must not exceed the loan limits for that county (for most counties $417,000), otherwise they fall into the category of jumbo loans, which typically have a higher interest rate. Some home buyers opt to utilize a second loan to avoid getting jumbo loan by getting a first mortgage for just under the loan limit and a second mortgage to cover the difference between the loan limit and purchase price of the property.