What are conventional loans?

They are mortgages that are not insured by any government agency but instead are provided by lenders and financial institutions sponsored by the government (Government Sponsored Entities - GSEs). Compared to mortgages that are backed by the government, these loans typically require higher credit scores and stricter income and debt-to-income ratios. These loans, however, offer lower interest rates for those who qualify, making them a cost-effective option for people with strong credit scores and a solid financial history. Fannie Mae or Freddie Mac guidelines are usually used to underwrite conventional loans. A bank or a mortgage institution may include these as private money or portfolio type loans that it funds but does not sell on the open market.