Conventional Mortgage
What is a Conventional Mortgage?
A conventional mortgage is a home loan not insured or guaranteed by a government agency, such as the FHA or VA. These loans are offered by private lenders and typically require a higher credit score and down payment than government-backed loans, though options with as little as 3% down are available. If the down payment is less than 20%, private mortgage insurance (PMI) is usually required.
Key features of conventional loans
Down payment: Options are available with down payments as low as 3%, but putting down 20% or more avoids private mortgage insurance (PMI).
Private Mortgage Insurance (PMI): If your down payment is less than 20%, you’ll likely need to pay PMI, which can be canceled once your loan-to-value (LTV) ratio reaches 80%.
Credit score: A good credit history is often required, though requirements vary by lender.
Loan limits: “Conforming” loans must meet limits set by the Federal Housing Finance Agency (FHFA), which are higher in high-cost areas. Loans that exceed these limits are called “jumbo loans” and are considered “non-conforming”.
Loan terms: Common terms include 15- and 30-year fixed-rate mortgages, where the interest rate remains the same for the life of the loan.
Debt-to-income (DTI) ratio: Lenders look at your debt-to-income ratio to assess risk. A common requirement is below 43%, though some lenders may allow up to 49%.
Eligibility: The property does not need to be a primary residence, making conventional loans an option for second homes or investment properties.
