Conventional Mortgage

A conventional mortgage loan is also known as a “conforming” loan, which basically means that it can be sold to  Fannie Mae or Freddie Mac. Fannie Mae and Freddie Mac are GSE's (government-sponsored enterprises) which exist to  purchase mortgage loans  and sell them to institutional  investors. This frees up capital to continue the process over and over again.

There are many types of "non-conforming" loans these include Jumbo loans which are very common and other loan types like Bank Statement Loans. A licensed Mortgage Broker can help you to decide the best option for you. 

Conventional Loans tend to be significantly stricter than FHA loans which traditionally have more lenient guidelines when it comes to credit and income requirements. VA Loans & USDA loans are also government backed and tend to have flexible guidelines for those who qualify.

First-time home buyers may be able to get a conventional mortgage with as little as 3% Down. Requirements can vary depending on your individual situation and the type of loan or property you qualify for:

• If you’re not a first-time home buyer or if you make more than 80% of the median income in your area, the minimum down payment  is 5%.
• For properties with multiple units the down payment required may be larger
• A second home will require you to put at least 10% down.

If you put down less than 20% on a conventional loan, you’ll be required to pay for private mortgage insurance (PMI). PMI protects your mortgage investors in case you default on your loan (stop making payments). PMI costs vary based on your credit score, down payment, debt ratios and other factors.

PMI is usually paid as part of your monthly mortgage payment, but there are other ways to cover the cost as well. PMI can also be financed into the loan as a single premium or split.

One benefit of Private Mortgage Insurance which is different from FHA Mortgage Insurance is that it won’t be part of your loan forever – that is, you won’t have to refinance to have PMI removed. When you reach 20% equity in the home on your regular mortgage payment schedule, you can request for your loan servicer to remove the PMI from your mortgage payments. Once you reach 22% equity in the home, your loan servicer will automatically remove PMI from your loan.