A conventional mortgage refers to the underwriting and insuring of a mortgage. A mortgage can be underwritten by Fannie Mae, Freddie Mac, or the government.

Conventional Mortgage Definition

A conventional mortgage is a mortgage that follows the loan limit, pricing, and underwriting guidelines of Fannie Mae and Freddie Mac and are insured by one of the same two companies.

Conventional mortgages are the “bread and butter” of the mortgage industry.

Until recently, conventional mortgage made up over 80% of all loans originated. The recent subprime mortgage boom skewed the numbers until that market went bust.

And now, FHA is capitalizing on refinancing many subprime borrowers, so the FHA originations are temporarily up now too.

Conventional Mortgage VS FHA

A conventional mortgage is not an FHA mortgage. It is also not subprime or VA. FHA and VA mortgages are insured by the government directly through Ginnie Mae.

A conventional mortgage is the opposite of an FHA mortgage. Conventional is underwritten by either Fannie or Freddie and an FHA is underwritten by the government.

It gets a little confusing when you talk about conventional and conforming. A conforming mortgage is one that is conventional and is under the conforming loan limit of $417,000.

If the mortgage is over $417,000, it is considered a jumbo mortgage.

An FHA mortgage has loan limits that are different for different areas but a conventional one is set at $417,000.

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