A conventional loan is a mortgage that is not guaranteed or insured by the US government. Conventional mortgages include construction loans, portfolio loans, and subprime loans. Conventional loans are the most common type of mortgage.
Fannie and Freddie follow the below criterion to evaluate mortgages they purchase:
- They must meet the conforming loan limit which is evaluated every year
- Loans with borrowers who have a minimum Credit Score
- It meets the GSE guidelines in regards to Debt-to-Income ratios
- Private Mortgage Insurance (PMI) is required for all loans where the borrower has less then 20% equity
- It is important to understand that neither Freddie Mac nor Fannie Mae service the loans they purchase.
- Basically, even though these companies purchase loans from various lenders, it is the lender who retains the servicing – just a nice way of saying “we collect your payments.”
Short and sweet, but definitely to the point! This post cleared up my confusion regarding loans, )conventional loans more specifically). Even though it does not currently apply to me I think you would agree that it is good to know just in case it comes up unexpectedly or just to know for when it does become relevant. Thank you!