A conventional mortgage conforms to loan limits, down payment requirements, borrower income requirements, debt-to-income ratios, and other underwriting guidelines established by Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mae purchase mortgages that meet these limits, thereby creating additional funding lenders can use to make new mortgage.
Note: There are 2 types of Conventional Loans, conforming and non-conforming (also known as Jumbo Loans).
The Federal Housing Finance Agency, which now sets the loan limits, also created higher loan limits for areas of the country designated as “high-cost areas.” There are high-cost areas in all regions of the country except the Midwest.
Income Qualifications: Conforming loan programs require comprehensive income qualifications. Your income must meet standards and guidelines relevant to the loan program. Your monthly housing costs (mortgage principal and interest, property taxes and insurance) must meet a specified percentage of your gross monthly income. You must have enough income to pay your housing costs plus all additional monthly debt.
The main difference between a conventional loan and other types of mortgages is the fact a conventional loan is not made by a government entity nor insured by a government entity. It’s what we refer to as a non-GSE loan. A non-government sponsored entity.