Also can conforming be refinanced or is set like this for the length of the loan?
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First things first, for the purposes of getting a mortgage there’s 3 parties. The loan originator – the loan guy you actually talk to and sign papers with. The loan servicer – the bank you make your payments to. The investor – the entity actually fronting the money for the loan. They can be but are not required to be the same company. You can go to FlyByNight Mortgages in a strip mall and end up making payments to Wells Fargo on your Fannie Mae loan.
Another two very important players are the investors Fannie Mae (FNMA) and Freddie Mac (FHLMC), they are what are known as Government-Sponsored Enterprise (GSE). They’re *kinda* like a government agency but they’re not. The government has a lot of say in their operation, but they are held privately.
Conventional typically refers to a mortgage based on FFNMA/FHLMC investor guidelines (they are slightly different but largely match each other). It doesn’t necessarily mean a mortgage from them, most major banks have their own in-house mortgage investment programs that are based on those guidelines, usually with small differences in what qualifies or not. Generally a banks in-house program will be more restrictive than FNMA/FHLMC, but not always.
Think of it like how the NFL has their own official rules of football and some leagues might take the NFL rulebook and change 2 lines rather than coming up with a completely different rulebook.
They are Conventional loans, as opposed to USDA, FHA, VA, or similar government programs that underwrite their own loans with their own requirements that are sometimes very different from FNMA/FHLMC. Another not unheard of non-conventional loan would be something like seller-financed where the property seller finances the mortgage — or, rather, they just don’t ask for all the money up front and tick off what’s owed when the payments come in.
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A Conforming loan is very, very similar. It just means the loan actually meets FNMA/FHLMC guidelines (or, depending on context, meets the normal conventional guidelines for that specific investor even if it’s not FNMA or FHLMC). The most common type of non-conforming loan is a “Jumbo” or sometimes called “Super-Conforming” loan. FNMA/FHLMC have loan limits, they won’t take loans that are higher than a certain amount. If the loan *is* higher than that amount then it’s non-conforming. FNMA/FHLMC won’t take it, but a specific investor might. Like if you need a mortgage that’s larger than what FNMA will do you might have to go with Truist as the investor on your loan.
Other non-conforming loans are things like a credit union might decide to make an exception to the normal waiting periods after a foreclosure. They can do that because it’s their own money, they don’t *have* to follow FNMA/FHLMC guidelines, even if they normally do.
So Conforming and Conventional are pretty close to the same thing, but there are some differences.
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