What defines a conventional mortgage loan?

A conventional mortgage loan is specifically defined as any mortgage not backed by government entities. This categorization includes loans that are funded by private lenders and can be either fixed-rate or variable-rate. The key distinguishing factor is the absence of government backing.

Government-backed loans, such as FHA (Federal Housing Administration) or VA (Veterans Affairs) loans, involve government guarantees or insurance, which lowers the risk for lenders, thereby influencing terms and requirements. In contrast, conventional loans operate purely through private financing, thus following the guidelines set by the lenders themselves, which can include specific credit score requirements, down payment stipulations, and debt-to-income ratios.

By understanding that a conventional mortgage is one that relies solely on private market mechanisms, it highlights the inherent differences in risk, regulation, and policy between conventional loans and those that are government-backed. This understanding underscores why the nature of the backing—not the rate type or other features—defines a conventional mortgage.