What is a conventional loan?

A conventional mortgage loan is not directly insured by a government program. Most conventional loans are also “conforming” loans, which simply means that they meet the requirements for Fannie Mae or Freddie Mac. Both are government-sponsored enterprises that purchase mortgages from lenders and sell them to investors. This frees up lenders’ funds so they can get more qualified buyers into homes.

Conventional mortgages are available with several different term options with most people choosing between 15-year and 30-year terms.

Because there are several different sets of guidelines that fall under the umbrella of “conventional loans,” there’s no single set of requirements for borrowers. However, in general, conventional loans have stricter credit requirements than government-backed loans like Federal Housing Administration (FHA) loans.