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The conventional lender is held to the standards adopted and amended from time to time by the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC) commonly known as "Fannie Mae" and "Freddie Mac." These secondary market operators dictate how the conventional lenders will act because inevitably, these lenders will seek to sell their loans to them.

Conventional loans are so named because they are generally written without any third party guarantees. Thus, the lender has to exercise caution in their underwriting since the lender is directly at risk in the event of a default. However, if the conventional loan is issued at greater than 80% of the collateral property's value, the FNMA and FHLMC guidelines require that they be insured by a private mortgage insurance company.