Conventional Loans

Types of Conventional Loans

Conforming Loans

Conforming loans follow the rules created by Fannie Mae and Freddie Mac, the two major government‑sponsored enterprises that set national lending standards. The most important rule is the conforming loan limit, which is the maximum loan amount these agencies will buy from lenders. These limits change every year and vary by county. When a loan fits inside these limits and meets the credit, income, and documentation guidelines, it usually comes with better pricing and more predictable underwriting. Borrowers benefit from competitive rates, flexible terms, and a smoother approval process.

High Balance Conforming Loans

In expensive housing markets, the standard conforming limit is not enough to cover typical home prices. High balance loans exist to bridge that gap. They still follow Fannie Mae and Freddie Mac rules, but they allow a higher loan amount. This helps buyers in places like Los Angeles stay within the conforming system instead of jumping into jumbo financing, which is stricter and more expensive.

Non Conforming Conventional Loans (Jumbo Loans)

Jumbo loans exceed the conforming limits and are funded by private lenders who set their own rules. Because these loans are not backed by Fannie Mae or Freddie Mac, lenders take on more risk and require stronger financial profiles. Borrowers should expect higher credit score requirements, larger down payments, and more detailed documentation. This can include multiple years of tax returns, asset statements, business records for self‑employed borrowers, and proof of significant reserves. Jumbo loans are designed for higher priced homes and financially strong borrowers.

Fixed Rate Conventional Loans

A fixed rate loan keeps the same interest rate for the entire term, usually 15 or 30 years. This gives borrowers stable monthly payments and long term predictability. It is ideal for people planning to stay in their home for many years or those who prefer financial consistency.

Adjustable Rate Conventional Loans (ARMs)

An adjustable rate loan starts with a lower introductory rate for a set period, such as five, seven, or ten years. After that period, the rate adjusts at scheduled intervals based on a market index. ARMs can be useful for borrowers who expect to move, sell, or refinance before the adjustment period begins, allowing them to take advantage of the lower initial rate.