Conventional

Conventional

A conventional mortgage is a type of home loan that is not insured or guaranteed by the government. It is considered “conventional” because it follows the standard lending guidelines set by Fannie Mae and Freddie Mac, the two government-sponsored entities that purchase the majority of U.S. residential mortgages from lenders. Conventional mortgages can be either fixed-rate or adjustable-rate, and the terms and conditions, such as the down payment requirement and credit score criteria, can vary depending on the lender and the borrower’s financial profile.

One of the key differences between a conventional mortgage and other types of government-backed loans, such as FHA and VA loans, is that conventional loans typically require a higher down payment (some as low as 3%) and a higher credit score. Conventional loans also usually have stricter standards for debt-to-income ratios, and do not require mortgage insurance if the down payment is at least 20%. However, conventional loans offer the potential for lower interest rates and more flexible terms than government-backed loans, and may be a good option for borrowers who have a strong financial profile and meet the eligibility requirements.