Which of the following describes a Conventional Loan?

A Conventional Loan is primarily characterized by its adherence to the guidelines set by Fannie Mae and Freddie Mac, which are government-sponsored enterprises that provide liquidity in the mortgage market. These guidelines establish criteria such as the loan amounts, borrower creditworthiness, and down payment requirements, making it a standard choice for many lenders and borrowers who do not need government insurance for their loans.

Conventional loans can be either conforming or non-conforming, but the defining aspect is that they do not have government backing, differentiating them from loans insured by organizations such as the FHA, which are risk-shared with the government. Moreover, these loans are commonly available with various down payment options, including those that require down payments, unlike some loan programs designed specifically for no-down-payment scenarios.

This creates a clear distinction between Conventional Loans and other types like FHA loans or VA loans, which have specific eligibility requirements and benefits aimed at certain borrower populations. Understanding these fundamental differences is essential for mortgage professionals as they guide clients through various financing options.