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Conventional Conventional Financing: These are mortgages that are not insured or backed by the government. These loans are sold on the secondary mortgage market and typically conform to underwriting guidelines set by Fannie Mae (Federal National Mortgage Association) or Freddie Mac (Federal Home Loan Mortgage Corporation). These are quasi government corporations, which purchase mortgage loans from banks. The benefit of these secondary market organizations is they keep mortgage money available by paying banks for the mortgages they originate and they create stability in pricing in the market. Before Fannie Mae and Freddie Mac were created, banks could only lend out of their own portfolio and had to stop lending when they had used up to much of their reserves.
Conforming Loans: These loans conform to the standards set by Fannie Mae and Freddie Mac. The standards determine the type of property, loan amount, percentage of home to be financed, appraisal standards, credit and employment standards, and the procedures by which we verify information on the mortgage application. These standards also provide us with the FNMA Form 1003, which is the Uniform Residential Mortgage Application. This is the application used by all lenders originating mortgage loan.
Non-Conforming Loans: These are loans that do not conform to the standards created by Fannie Mae and Freddie Mac. These loans are usually held in portfolio or are purchased by other large investors. These include Jumbo loans, No Income Verification, No Documentation, and Sub-Prime loans. They are underwritten differently by each investor. These loans offer flexibility to people whose loans do not meet the conforming guidelines.
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