Conventional Loan

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

Conventional loans are either "conforming" or "non-conforming". Conforming loans follow the terms and conditions set by Fannie Mae and Freddie Mac. Non-conforming loans do not meet Fannie Mae or Freddie Mac qualifications, but are also considered conventional.

Another category of loans, jumbo loans, falls outside of Fannie Mae eligibility but is also considered conventional. Jumbo loans exeed the maximum loan amount established by Fannie or Freddie and usually carry a higher interest rate.

Conventional loans can be fixed rate mortgage or adjustable rate mortgage with many multiple configurations such as balloon payments, Option ARMs, hybrid (combination of fixed and ARM) loans, and a wide range of payment periods.

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