Conventional Loans

What is a Conventional Loan?

The definition of a conventional loan is any mortgage loan that is not backed or insured by a government entity.

Government-backed loans like USDA loans, FHA loans, and VA loans are available to some based on certain qualifications, but conventional loans are the most common type of mortgage loan for borrowers to obtain.

The purchase price of a home is often far higher than what buyers can bring to the table upfront. A home loan allows them to still purchase that home as long as they can pay back the cost of the home plus interest. Mortgage lenders will gauge the risk of a loan by evaluating buyers to determine whether or not they will be able to pay the amount back. Conventional loans are not backed by an official government agency, so you need to have a reliable financial status to receive this mortgage loan.

Types of Conventional Loans

Within this category, there are multiple types of mortgage loans. They are differentiated based on the loan amount, loan limits, and other factors. Here are the main mortgage loan categories that are still considered conventional.

Conforming Loans

Conforming loans are those that fall within the base conforming loan limit that is set by Fannie Mae and Freddie Mac. Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) are non-government agencies that are regulated by the Federal Housing Finance Agency. These two organizations are the main drivers of the mortgage loan market. A conforming conventional loan is any conventional mortgage that is below the $766,500 loan amount limit, (as of 2024, some markets may differ).

Non-Conforming Loans

Loan amounts that are beyond that limit or are not backed by Fannie Mae and Freddie Mac. This includes mortgages that are above $766,500, but it also includes government-insured loans like VA loans or FHA loans. Nonconforming loans that are conventional have much higher loan limits.

Jumbo Loans

A jumbo loan is a name for a mortgage that is conventional but higher than the limit set by Fannie Mae and Freddie Mac. Jumbo loans are considered too risky by these entities since so much money is involved, making the potential for a loss to lenders increase. Jumbo loans can go up to a maximum loan amount of $30,000,000.

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