A conventional loan is a home loan that is not insured by a government agency. Conventional loans typically require a down payment and include “out-of-pocket” closing costs.
Conventional loans typically require a down payment. The amount of the down payment determines if the borrower can avoid paying Private Mortgage Insurance (PMI), which protects the lender in case of default. To avoid paying PMI, a buyer must have at least 20% equity in the property (put a 20% down payment down). Where PMI is needed, borrowers are required to pay the PMI premiums as part of their regular monthly mortgage until sufficient equity in the property is reached.
There are two types of Conventional mortgages, Conforming loans and Non-Conforming (Jumbo) loans. Conforming loans are conventional mortgages that have a loan limit set by Fannie Mae and Freddie Mac. Loans that exceed the conforming loan limit are known as Non-Conforming, or Jumbo, loans. Usually rates on Jumbo loans are higher than those on Conforming loans.
For more information on Conventional Loans:
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