Conventional Loans

Conventional loan is a mortgage loan that is not guaranteed by any government agency including the Federal Housing Administration (FHA), the Farmers Home Administration (FmHA) and the Department of Veterans Affairs (VA).  Although, it is not insured or guaranteed by the government, it still follows the guidelines of government sponsored enterprise or commonly known as the GSE.
The Federal National Mortgage Association (Fannie Mae) and the Federal Home Mortgage Corporation (Freddie Mac) are the nation’s two largest finance lenders.  They operated since 1968 as the Government Sponsored Enterprise (GSE).  They are privately owned but protected financially by the Federal Government.  The protection of the Federal Government includes access to a line of credit through the US treasury, have exemptions from the state and local income taxes and exemption from SEC oversight.
There are two types of conventional loans, the conforming and the non-conforming loans.  The Conforming loans follow the terms and condition set by the Fannie Mae and the Freddie Mac.  Conventional loans can be fixed rate mortgages, adjustable rate mortgages, balloon mortgages, or hybrid loans.
Nonconforming loans don’t meet Fannie Mae or Freddie Mac qualifications, but are still considered conventional. Jumbo loans are an example of a conventional loan that does not meet Fannie Mae or Freddie Mac guidelines.  It is a loan that exceeds the limit and guidelines required by Fannie Mae or Freddie Mac, for loans they are willing to purchase from mortgage originators.

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