Thursday, January 27, 2011

What is a Conventional Loan?

Here's what you need to know about conventional loans.

A conventional loan is any non-government loan. Government loans include FHA, VA, and USDA loans.

Conforming Vs. Conventional

• Conforming loans “conform” to the Fannie Mae or Freddie Mac underwriting guidelines
• Fannie Mae and Freddie Mac are private companies that buy mortgages from lenders
• All conforming loans are conventional loans because they are not government loans
• NOT all conventional loans are conforming loans, however, because not all non-government loans conform to the Fannie and Freddie guidelines
• Conforming and conventional are NOT interchangeable terms

Some examples of conventional loans that are NOT conforming loans:

• Portfolio loans: loans that lenders keep in their own portfolio and do not sell to Fannie Mae or Freddie Mac
• Sub-prime loans: loans with very relaxed underwriting guidelines

Is Conventional Better than FHA, VA, or USDA?

• Sometimes yes, and sometimes no
• You need to discuss your situation with a lender to know which is best for you
• Lenders must be approved by the government to sell government loans
• If your lender is not approved to sell a government loan, do you think they will tell you how good it is? Make sure your lender is approved by the government to sell government loans.

Fannie Mae Guidelines

Here's the link:

• Click on 2011 Selling Guide
• Then on Part B, Originating Through Closing
• Then on Subpart B3, Underwriting Borrowers
• Then on Chapters B3-1, B3-2, B3-3, B3-4, B3-5, and B3-6

Ask your lender if they know how to find the Fannie Mae guidelines. We'll bet they can't!

Want to watch our video of this tip? Check it out on our web site by clicking here.

Want to make sure your loan closes? Call the Mortgage Experts at 303-345-3683.

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