Conventional mortgages can be used to finance the purchase of a home or to refinance a current mortgage under more favorable terms. They can be issued with a fixed or variable interest rate and vary in term length—typically in 15- or 30-year terms.
Conventional mortgage loans differ from other mortgage loan options because they are not offered or backed by a government agency and are instead provided by private lenders, like banks and mortgage companies. The terms and guidelines of a conventional mortgage loan are set by two of the Sponsoring Government Enterprises (GSE)—the Federal National Mortgage Association (Fannie Mae), or the Federal Home Loan Mortgage Corporation (Freddie Mac).
Most consumers buying for the first time are required to put a 5% down payment, but some may qualify for as little as 3% down. If a borrower makes a 20% down payment, their PMI is waived, which can save homebuyers a significant amount of money over the life of their loan.