What Are Conventional Loans

The federal government is the major driver of the idea of home ownership. Hence, it has become the biggest player in the residential mortgage market. Approximately one out five residential loans are either guaranteed or insured or by a federal agency. These types of loans are called government loans. The other 80 percent of residential mortgage loans are called conventional loans.

A Conventional mortgage must meet the underlying funding terms and other limits of Freddie Mac and Fannie Mae. For home properties in some states and U.S. territories such as Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the conforming loan limits are 50 percent higher.

2007 Single-Family Mortgage Loan Limits - Fannie Mae

Single-Family Mortgage Loan limits effective January 1, 2007:

First mortgages

One-family loans: $417,000

Two-family loans: $533,850

Three-family loans: $645,300

Four-family loans: $801,950

Note: One- to four- family mortgages in Alaska, Hawaii, Guam, and the U.S. Virgin Islands are 50 percent higher than the limits for the rest of the country.

Second mortgages

$208,500

In Alaska, Hawaii, Guam, and the U.S. Virgin Islands: $312,750

Source: Fannie Mae

Freddie Mac and Fannie Mae buy conventional loans that meet their guidelines and limits in the secondary mortgage market. The secondary mortgage market for conventional loans is very large and liquid. Majority of the conventional mortgages are bundled into pass-through mortgage-backed securities, which trade in a forward market known as the mortgage TBA (to be announced) market.

Due to the fact that a conventional loan is not given by the government, the lender obtains a lien or defeasible legal title to the property in return mortgage payment. Once the mortgage has been paid in full, you receive the title to your home. This loan may be fixed rate or adjustable rate mortgage.

What Are Conventional Loans

Blog: Gimmie The Scoop