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A mortgage conventional loan is a lender agreement that's not guaranteed or insured by the federal government under the Veterans Administration (VA) the Federal Housing Administration (FHA), or the Rural Housing Service (RHS) of the U.S. Department of Agriculture. Although a conventional loan is not insured or guaranteed by the government, it can still follow the guidelines of government sponsored enterprises (GSE's) such as Fannie Mae or Freddie Mac as both Fannie Mae and Freddie Mac are stockholder-owned corporations and are not part of the federal government.

Types of Conventional Loans

Conventional loans may be "conforming" and "non-conforming".

Conforming loans follow the terms and conditions set by Fannie Mae and Freddie Mac. These guidelines put the maximum price for a first mortgage at $715,000 for a single-family dwelling. If the purchase is made outside of the 48 contiguous United States (in Guam, the Virgin Islands, Hawaii, or Alaska), or the dwelling is for a two-family, three-family, or four-family configuration, larger values apply before the loan is no longer considered a conventional loan.

Nonconforming loans don't meet Fannie Mae or Freddie Mac qualifications, but that are still considered conventional. Jumbo loans are one example of a conventional loan that does not meet Fannie Mae or Freddie Mac guidelines. A jumbo loan is a loan with a dollar value above the maximum loan amount established by Fannie or Freddie. Jumbo loans usually have a higher interest rate.

Conventional loans can be fixed rate mortgages, adjustable rate mortgages, balloon mortgages, or hybrid loans. Almost any type of loan that you take, if not issued by a government entity, is considered a conventional loan.

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