Conventional Mortgage

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Mortgage Dictionary -> Conventional Mortgage

With all this talk about adjustable rate mortgages, interest rate mortgages and the many other different types of mortgages that exist, many people are forgetting about one type of mortgage that has been around for a long time and continues to be one of the best options for most people: the conventional mortgage. The conventional mortgage isn't always mentioned when it comes to discussing mortgages, and yet, it's the backbone of the mortgage world.

What is a Conventional Mortgage?

In a nutshell, the conventional mortgage is any mortgage that is backed by Freddie Mac or Fannie Mae, two mortgage companies. This means that the company stands behind the mortgage, whether they've bought it or simply back it. About 35-40% of all mortgages regardless of if they're traditional, ARM or interest rate mortgages are conventional mortgages, making them the most popular type of mortgage.

Why Are Conventional Mortgages Desirable?

Just like you want your credit union or bank to have insurance on your money in the event of something wrong, you also want your mortgage to be backed. Every conventional mortgage is backed by either Freddie Mac or Fannie Mae, which is protection for you in the event of something happening to the mortgage itself.

Other Essential Conventional Mortgage Facts

Not Insured by the Government. Some mortgages are insured by the Federal Housing Administration, but because the conventional mortgage is backed by a company, there is no need for it to be insured by the FHA.

Secured by Investors. Your conventional mortgage isn't just secured by one person, but rather, by hundreds, if not thousands of investors.

Can't Be More than 75% of Appraised Value. Because conventional mortgages are backed so well, they cannot be valued at more than 75% of the appraised value of the home. For some home owners, who do not have enough of a down payment, this can spell bad news.