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What are Conventional Loans?

June 29, 2015

A conventional loan is any mortgage which is not guaranteed or insured by the federal government, such as FHA or VA loans. The minimum down payment is 3-5%.

On Conventional loans, if you put less than 20% down, you are charged a private monthly mortgage insurance (PMI) as part of your payment. Your credit and debt to income ratio requirements are more stringent than FHA loans. Mortgage rates are also typically higher than government backed loans.

Why would someone choose to use conventional financing? The PMI is generally less than on FHA loans, and it can be removed after the loan to value reaches 78%. Also, the condition of the home is less of a concern than FHA.

You also have the option to do a “NO PMI” loan with conventional financing. It may or may not be a better than the monthly PMI, but this is where we can give you options.

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