A conventional mortgage is a type of mortgage in which the terms and conditions of the loan meet the criteria set forth by Fannie Mae and Freddie Mac. A conventional mortgage can be defined as either a fixed rate mortgage (FRM) or an adjustable rate mortgage (ARM).
A fixed rate mortgage is classified as having the same principal and interest payment for the life of the loan, while an ARM is identified by having a fixed rate for only a specified period of time before the rate becomes variable, depending on market conditions.
Many times, people confuse a conventional mortgage with a conforming mortgage.
However, a conventional mortgage can be both conforming or non-conforming (jumbo).
Because conventional loans are set by Fannie Mae and Freddie Mac, the easiest way to identify if a loan is conventional or not is to know whether or not the loan is government insured. Typical government-insured loans are FHA (Federal Housing Administration), VA (Veterans Affairs) or USDA (United States Department of Agriculture) Rural Development loans. Fannie Mae and Freddie Mac are considered stockholder-owned corporations.
The most common conventional mortgage terms are fixed for 30 and 20 years, however, you can get other fixed-rate loans for 10-, 15-, 25- year terms. There are also 3/1, 5/1, 7/1 and 10/1 ARMs.
You do not need 20% down for a conventional mortgage. You can get a conventional mortgage with as low as 5% down but you will have to pay mortgage insurance and it will depend on your credit score to determine whether you can get mortgage insurance or not.