Conventional

Strictly speaking, a conventional loan is “conventional” because it is not insured by VA or FHA (government) insurance. Although often used interchangeably, there is a distinction between “conventional” and “conforming” loans as a conforming loan is a conventional loan that specifically meets Fannie Mae and Freddie Mac’s lender guidelines. In today’s lending environment, when you hear “conventional” mortgage your lender is almost certainly talking about a conforming Fannie/Freddie product. A common misconception is that Fannie Mae and Freddie Mac originate loans and are lenders. Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) created by Congress in the 1930s and 1970s, respectively, that purchase loans from banks so that banks have liquidity to issue more home loans. While FHA loans typically have better interest rate pricing, if you qualify for a conforming conventional loan it usually makes sense to opt for the conforming conventional loan because of the lower mortgage insurance payments. However, whether you use a conforming conventional loan or not depends entirely upon your personal situation, including your down payment capacity, your credit score, loan to value, geography and income.