Conventional Loans

Conventional loans, unlike FHA and VA loans, are not insured by a government agency. They come in many types, which are: conforming loans, non-conforming loans, jumbo loans, portfolio loans, and sub-prime loans.

Conforming Loans make up around 50% of all conventional loans. The reason they are called “conforming loans” is because they “conform” to the guidelines established by Fannie Mae and Freddie Mac. These two government-sponsored enterprises buy up the mortgages from lenders and then re-sell them to investors. This makes loans more easily available.

Non-Conforming Loans are loans that do not conform with Fannie Mae and Freddie Mac.

Jumbo Loans are non-conforming loans larger than the limits allowed by Fannie Mae and Freddie Mac.

Portfolio Loans are loans that lenders privately own on their own books. Since they are providing the loan, they are allowed to set the loan guidelines as they see fit, so long as they comply with the law. Since they are not bound by pre-defined guidelines, these loans may have features not found in other mortgages, such as using stocks as a form of security for a loan a borrower might otherwise not qualify for.

Alt QM Conventional Loans are typically for borrowers with a low credit score. They usually bring higher interest rates and fees along with them. The government has formed special rules and guidelines that must be followed so that people are less likely to be taken advantage of. That being said, they are still not government-backed.