What are Conventional Loans?
To make sure that the mortgages available in the market are safe for the individual and the economy congress created quasi government companies.
These companies are known as Government Sponsored Enterprises (GSE for short). Two examples of such entities are Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). The loans that are backed by these companies are known as Conventional Loans.
Just like government sponsored loans like FHA, VA, USDA, etc. Conventional loans are also not insured o by the GSE and insurance for these loans is purchased separately.
What is the relevance of GSE to Conventional loans?
The GSE Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) are responsible for setting the guidelines for conventional loans and also for purchasing mortgages. There are two types of conventional loans. Those loans that meet the guidelines and requirements of Freddie Mac and Fannie Mae and those loans that do not meet these requirements.
The loans that meet the guidelines provided by Freddie Mac and Fannie Mae are called Conforming Conventional Loans, these are purchased by the GSE. The loans that do not meet the guidelines are referred to as Non-Confirming Conventional Loans and are not purchased by the GSE.
Why go for Conventional Loans?
There is always a comparison between Conventional loans and government sponsored programs. The government sponsored programs like FHA and VA are very attractive however such programs also carry stringent requirements that can be very specific, making it challenging to qualify for them. This, however, is not the case for conventional loans. These mortgage programs are more flexible than government sponsored programs and offer more variety in the terms of the mortgages, they do however have requirements of high credit scores for qualifications.
But if you do qualify for conventional loans then you become eligible for a number of benefits like low-interest rates, low down payment options, fixed interest rates, and so on. Another valuable benefit that conventional loans offer is that you don’t have to buy a property just for it to be your primary residence. This opens up a lot of great options for someone looking to expand their real estate portfolio.
Also unlike government sponsored programs conventional loans are very fast in terms of processing. The strict requirements give these programs a much faster process time.