Conventional Loan

What are Conventional Loans?

Conventional loans are home loans that are not guaranteed or insured by the federal government so they may have stricter application standards. There are conventional mortgages that fit similar requirements set by Freddie Mac and Fannie Mae for down payments that are 3% or higher. Homeowners who can put 20% down or more do not have to pay mortgage insurance premiums on conventional loans. FHA loans require this kind of insurance referred to as PMI.

The traditional mortgage borrower who pursues a conventional loan may put down a large down payment or have a secure financial profile. The higher the down payment, the lower the monthly payment. With a conventional loan, the PMI can be dropped once the loan balance hits 78% of the home value in contrast to an FHA loan that requires PMI for the life of the loan.