A conventional mortgage is a home loan that follows the traditional guidelines set forth by the quasi government agencies Fannie Mae and Freddie Mac. The rules that govern conventional financing determine whether a loan is considered to be conforming or non-conforming. Fannie Mae and Freddie Mac do not insure and or purchase mortgages that do not qualify as conforming.

A conforming conventional mortgage has a maximum loan amount of $417,000 and it must follow the traditional underwriting guidelines in terms of income, assets and property type.

Non-conforming conventional loans have traditionally been considered to be any mortgage that exceeds $417,000, finance a multi-family property or use non-traditional qualifying criteria.

Today, conventional loan guidelines dictate that borrowers have a minimum down payment, credit score and number of months of reserves. Thus, conventional financing is not typically the most favorable choice for individuals considering their first home purchase. However for existing homeowners, a conventional mortgage will usually be the most cost effective loan available.