Conventional Loans


Conventional loans are not guaranteed or backed by the Federal government or its agencies. Most conventional loans are conforming loans while some are non-conforming loans.

Therefore, all conforming loans are Conventional Loans, however not all conventional loans are conforming loans. The Conventional Loans are defined by lending Institution such as banks, credit unions, mortgages companies however a Conforming Loan is defined by the Lending criteria, i.e conforming to the criteria of Fannie Mae and Freddie Mac guidelines. 

Definition of a Conforming Loan: A Conforming loan or Mortgage conforms with the guidelines of Fannie Mae and Freddie Mac. Any loan not conforming with the guidelines of Freddie Mae and Freddie Mac are Non Conforming Loans. 

A Conforming Loan typically has a stringent lending criteria and has a lower Interest rate. They can be sold in the secondary mortgage market such as Fannie Mae and Freddie Mac. A non-conforming loan typically has a higher Interest rate. 

For High value homes, homes that exceed the maximum loan limits for Conventional Loans, some of our Lenders offer Jumbo Loans. These loans may or may not have a higher interest rate however typically have a more strict lending criteria such as a high credit score, more down payment and reserves. The criteria for Jumbo loans can vary from Lender to Lender. 

Freddie Mac is The Federal Home Loan Mortgage Corporation (FHLMC) that is publicly traded government sponsored enterprise. Freddie Mac was chartered by Congress in 1970 so money could keep flowing to the mortgage lenders and to support home ownership and the Rental market. The statutory mission of Freddie Mac is to provide liquidity, stability and affordability to the US Housing market. Freddie Mac is not a government agency but chartered by the Congress as a private company serving a public purpose. 

The Federal National Mortgage Association (FNMA) or Fannie Mae was first chartered by the US government in 1938 to help ensure a reliable and affordable supply of Mortgage funds throughout the country. 

Both Fannie Mae and Freddie Mac buy mortgages from lenders. They perform an important role in the nation's housing finance system. They buy mortgages from lenders, either hold them in their portfolios or package the loans into Mortgage Backed Securities (MBS) that may be sold in the Secondary Market. The cash raised by selling these mortgages to the enterprise is used by lenders to further use the funds for additional lending. 

A Mortgage Backed Security (MBS) is an asset backed security, secured by a mortgage or a collection of mortgages. Fannie Mae and Freddie Mac buy mortgages, package them and guarantee the timely payment of interest and principal on these mortgages. This makes it an attractive investment in the secondary market. The process helps improve the overall mortgage market liquidity and keeps the interest rates lower for home buyers. 

To determine whether a loan is going to conform with Fannie Mae and Freddie Mac guidelines, an underwriter will submit the loan file through an automated underwriting system (AUS). Fannie Mae's AUS is called the Desktop Underwriter (DU). Freddie MAC's AUS is called Loan Prospector or LP. Common loan types used in conforming lending are 30 year and 15 year fixed rate mortgages and Adjustable Rate Mortgages. 


General Requirements for Conventional Loans: