A large portion of the loans originated on the market today fall under the Conventional loans category. These loans are underwritten using Fannie Mae and Freddie Mac guidelines. Conventional loans are considered "conforming" if they are $424,100 or less for a single-family home. Conforming loan limits can be higher in regions designated as "high cost". For example, in San Francisco, the conforming loan limit is $636,150. Anything above these caps is considered a Jumbo mortgage.
Getting Conventional financing is a great way to go if you meet Fannie or Freddie guidelines. These guidelines cover everything from borrower credit scores to income requirements to minimum down payments, and change frequently. For example, most Conventional loans require somewhere between 5% and 20% down, and typically 660 is the minimum credit score although in some cases you can go as low as 640. To get the absolute best interest rates, your credit should be over 740, because below that score lenders start adding fees which can be quite sizable the lower you go. These fees mitigate Fannie Mae's "LLPA's" or Loan Level Pricing Adjustments. These, simply put, are costs associated with higher risk, such as higher premiums would be charged for auto insurance to a driver with an accident, or speeding tickets.
Conventional loans can be conforming or nonconforming. Loans above the lending limits set by Fannie Mae and Freddie Mac are called nonconforming or Jumbo loans. Jumbo loans have higher interest rates and more stringent requirements on down payment than do conforming loan amounts.
Most Conventional mortgages have either fixed or adjustable interest rates. Typical fixed interest rate loans have a term of 15 or 30 years, although terms of 25, 20 or 10 years are also available. A shorter-term loan usually results in a lower interest rate. For example a 15 year loan will give you a better rate than a 20 year loan, just like a 20 year will yield a better rate than a 30 year. Adjustable-rate mortgages, or ARMs, fluctuate in relation to the rate of a standard financial index, such as the LIBOR. Monthly payments can go up or down accordingly.
Conventional mortgages generally pose fewer bureaucratic hurdles than FHA or VA mortgages, which can take longer to process because of the red tape.