What is a Conventional Loan

A conventional loan is any loan that isn't owned or insured by the government. That's just about all of them, although some of the Non-conventional loans, such as FHA or VA, are very popular products that service a lot of people. FHA loans (Federal Housing Authority) are loans that are insured by the government, whereas VA (Veterans Administration) loans are offered by the government. This is the primary reason why FHA and VA loans have different appraisal concerns than conventional loans, and not all properties qualify for these loan programs.

 

 

A conventional loan can be a traditional 30 year fixed, an ARM (Adjustable Rate Mortgage), it can be a 90% down loan or a 10% down loan and just about anything in between. Ultimately, as long as they aren't backed by the government in some way, they are a conventional loan. (See more at: Should I get a ARM or a Fixed Rate Mortgage?

 

 

Don't confuse 'Conforming' with 'Conventional'

Understanding Basic Categories of Loans Can Help you Navigate the Mortgage Market More Effectively

Another part of the mortgage lexicon is the term Conforming loan. A conforming loan is a loan that "conforms" to either the guidelines of the GSE (Government Sponsored Entities), which are known as Fannie and Freddie, or Fannie Mae and Freddie Mac. While technically not part of the government, they operate in a world between Government and Private Enterprise, as they are not really considered to be private companies. Most home buyers don't need to worry about that, but the key takeaway here is that the GSE help to "securitize" many loans. If a loan is going to be sold to a GSE, it must 'conform' to those guidelines, and thus be a conforming loan. Although loans can be securitized in other ways to other groups that hold mortgages, the GSE's are by far the most common. This is important because most lenders are vastly more interested in selling your loan to a GSE than keeping it on their books, so most banks will offer only conforming mortgages to regular retail customers.

 

Should I get a Conventional, Non-conventional, or Conforming Loan?

Finding the right mortgage loan product for your needs requires a little education on your part and an understanding of your needs. These different products exist because different people have different needs.

Some of the government loans (non-conventional) are really useful for people with limited down payments but good cash flow. Those with good credit and down payments may often find that conforming, non-conventional loans will offer them the best terms of financing. Without a complete understanding of your financial resources, cash-flow, credit, and goals, there is no single answer.