Conventional Loan

Navigating the home loan landscape can be daunting for homebuyers, but understanding the basics can make it easier. Home loans typically fall into two main categories: government-insured or guaranteed loans and those that are not. The latter, known as Conventional Loans, make up the majority of home loans.

Conventional Loans adhere to the standards set by Fannie Mae and Freddie Mac, two entities established by Congress in 1938 under the New Deal to bolster the mortgage market by increasing the funds available to lenders. Although they became privately held companies in 1970, they continue to operate under a Congressional charter.

Here’s how it works: Mortgage lenders provide loans to borrowers, and Fannie Mae and Freddie Mac purchase those loans, ensuring lenders are repaid. This cycle enables lenders to reinvest the funds into new mortgages, thus keeping the market liquid and dynamic.

Unlike government-backed loans, Conventional Loans follow distinct guidelines, offering fewer restrictions and greater flexibility. This means lenders can provide more tailored terms, features, and benefits to borrowers.