A conventional loan is a mortgage where the underlying terms and conditions conform to the criteria of Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac are continuously in the market for conventional loans which makes a conventional mortgage more liquid than non-conforming conventional loans and typically offers a lower interest rate. Criteria include debt-to-income ratio limits and documentation requirements. Fannie Mae and Freddie Mac only buy loans that are conforming to their conventional loan guidelines, to repackage into the secondary market, making the demand for a conforming loan much greater.
