Conventional Loans
Everything You Need to Know
Need to Know A conventional loan is a mortgage that is not government insured. Instead, it is available through lenders, such as banks, brokers, credit unions, and mortgage companies.
How a Conventional Mortgage Works Conventional mortgage applications could take weeks to get initially approved. As with any mortgage, there will be a lot of paperwork and supporting material that you have to prepare to gain approval. However, if you know what you're doing ahead of time, it's much easier.
Types of Conventional Loans Conforming Loan
Non-Conforming
A Conforming Conventional loan adheres to Fannie Mae and Freddie Mac standards. To be clear, those are not the names of specific individuals. Federal National Mortgage Association is abbreviated as Fannie Mae, and Federal Home Loan Mortgage Corporation is abbreviated as Freddie Mac.
These loans do not meet the Fannie Mae and Freddie Mac loan requirements and cannot be purchased by them. Most of the time when referring to a "non-conforming" loan, it's due to the loan amount. This is when they are referring to jumbo loans because they exceed the prescribed loan limit.
Non-Qualifying Mortgage (Non-QM) It is a subset of non-qualified conventional loans. Private lenders choose to hold on to their own book rather than sell their mortgage to Fannie Mae and Freddie Mac or other investors.
Credit score A credit score gives the lender an idea of how a borrower manages debt and loan repayments.
Requirements
Income Lenders want to ensure that you are gainfully employed and have sufficient income to handle the monthly mortgage payment, as well as any other debts you may have.
Debt-to-Income (DTI) Ratio This is the percentage of your monthly income that goes into the payment of debts.
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