Conventional financing is a the most common type of financing that is grouped into two primary categories – Conforming and non-conforming loans.
Conforming loans adhere to government standards set forth by Fannie Mae and Freddie Mac which provide backing for originating banks and lenders. Fannie Mae and Freddie Mac purchase and securitize mortgages that “conform” to their guidelines and requirements.
Non-conforming loans don’t follow government restrictions and will vary widely depending on the lender. Non-conforming loans include jumbo loans that exceed conforming loan amount limits, and bank statement programs for self-employed borrowers for example.
It's important to keep in mind that conventional financing may come with more stringent credit, income, and debt-to-income ratio requirements, as compared to government-backed financing programs. Mortgage insurance (PMI) with conventional financing is not life of loan and will be removed from monthly payments when the principal balance is paid down to 78% LTV based on initial amortization schedule.
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