A Conventional Mortgage is a loan which is given based on guidelines set by Fannie Mae and Freddi Mac. By ensuring that mortgages meeting specific criteria can be readily traded among lending institutions and investment banks, these Government-Sponsored Entities, or GSE's, increase the ability of lenders to provide long term mortgages. GSEs guarantee or purchase 35%-50% of all mortgages. These types of loans may be fixed rate or adjustable.
Conventional mortgages typically have higher down payments and require higher credit scores with the trade-off being that interest rates for thes loans are potentially lower than some other loan rates.
One major factor that determines whether a mortgage is conforming or not is loan amount – loans over the conforming loan limit are considered jumbo mortgages and will come with a higher mortgage rate as a result.
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