Conventional Loan

Definition - What does Conventional Loan mean?

Conventional loans are mortgage loans that are not backed by a government entity. Instead, they are the sole responsibility of the mortgage lender. Government entities such as the Federal Housing Administration and the Department of Veterans Affairs often back mortgage loans for mortgage lenders. However, conventional loans have no such federal backing.

Justipedia explains Conventional Loan

The reason why government entities often back mortgage lenders is because they are trying to keep the market stable, and give confidence to mortgage lenders so that people can keep getting mortgages. However, with a conventional loan, the full risk is on the mortgage lender. Examples of conventional loans include jumbo loans, portfolio loans, conforming loans, non-conforming loans and sub-prime loans. Mortgage lenders have the ability to set their own guidelines for certain types of conventional loans.

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