A conventional loan is a mortgage that is not guaranteed or insured by any government agency, including the Federal Housing Administration (FHA), the US Department of Agriculture (USDA) and the Department of Veterans Affairs (VA). It is typically fixed in its terms and rate.
Mortgages not guaranteed or insured by these agencies are known as conventional home loans. They include:
- Conforming loans
- Jumbo loans
- Adjustable Conventional Loans
About half of all conventional loans are called “conforming” mortgages, because they conform to guidelines established by Fannie Mae and Freddie Mac.
Loans that do not conform to Fannie Mae or Freddie Mac guidelines are referred to as “non-conforming” home loans. Non-conforming loans that are larger than conforming loan limits are often referred to as “jumbo” mortgages.
Conventional loans held by mortgage lenders on their own books are called “portfolio” loans. Because lenders can set their own guidelines for these loans and do not sell them to investors, these products may have features that other mortgages do not.
An adjustable-rate conventional loan means the loan is adjustable, it can fluctuate. For borrowers whose income may go up, an adjustable rate mortgage might be just the ticket to help with the early years of payments.
Conventional loans can be made to purchase or refinance homes with first and second mortgages on single family to four family homes. This type of mortgage is one of the most common mortgages. A down payment of 20% is required to avoid paying Private Mortgage Insurance , also known as PMI. PMI is required if you don’t put down is less than 20%.