Conventional mortgage loans are those that are not classified as government mortgages. Conventional mortgages can be conforming or non-conforming. Conforming loans are those eligible for purchase by Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation), the largest buyers of home mortgages in the United States. Non-conforming mortgages are those eligible for purchase by private buyers other than Fannie or Freddie. Fixed rate loans guarantee the start rate for the whole term of the loan.
Conventional mortgages are home loans purchased by any organization other than the Federal Housing Administration, the Veterans Administration or the U.S. Department of Agriculture. Along with Fannie Mae and Freddie Mac, conventional mortgage buyers include other mortgage lenders, private equity firms, securities dealers and/or pure investors, including insurance companies, university endowment funds, municipalities and pension plans. Conventional loans may be either fixed or adjustable rate, in any variety.
Conventional Fixed Versus Adjustable Rate Loans
Conventional fixed rate mortgages have no adjustable terms, offering homeowners a guaranteed rate over the life of the loan, typically 30 years. Conventional adjustable rate mortgages, called ARMs, may contain many varieties of interest rates, adjustment dates and rate adjustment -- up or down -- language. If eligible for purchase by buyers other than government agencies, these are all conventional mortgage loans.
Conforming Differentiated From Conventional
Conforming and conventional mortgages are used interchangeably by many, despite the fact that they are quite different products. Conforming loans are only those specifically approved for purchase by Fannie Mae and Freddie Mac. Conventional mortgages identifies those eligible for purchase by Fannie and Freddie and any other investor other than the United States Government.
FHA and VA Mortgages
Only those mortgage loans made or guaranteed by the FHA or VA are conventional loans. The U.S. Department of Agriculture also has a mortgage loan program limited to rural properties to encourage home ownership. Their volume, however, pales in comparison to the fixed rate loans guaranteed by the FHA and VA, often in the hundreds of millions of dollars each year. Called government mortgages, their regulations define neither conventional nor conforming loans.