Understanding how loans work specifically related to real estate is very important whether you’re purchasing a home, investing directly in real estate, or trading mortgage backed securities (MBS). So this week, I’ll outline the basics of conventional financing and Fannie and Freddie. Next week we’ll look at nontraditional loans.

A conventional loan is a lender agreement that’s not guaranteed or insured by the VA (Veterans Administration), FHA (Federal Housing Administration), or RHA (Rural Housing Service). A conventional loan can, however, follow the guidelines to meet the funding criteria of Fannie Mae and Freddie Mac (more about them a little later). If a loan follows the guidelines set by Fannie and Freddie, it’s considered to be “conforming,” whereas “non-conforming” loans don’t meet those qualifications but can still be conventional.

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