Conventional loans follow guidelines set by Fannie Mae and Freddie Mac if they are conforming loans. They typically require higher credit scores (620+) and larger down payments (3-20%) than government-backed loans. If the down payment is less than 20%, private mortgage insurance (PMI) is required. Conventional loans offer both fixed-rate and adjustable-rate options. Non-conforming conventional loans (jumbo loans) exceed the conforming loan limits.
A buyer with a 740 credit score and 10% down payment obtains a conventional loan for $300,000. Because the down payment is less than 20%, the lender requires PMI. Once the buyer reaches 20% equity, the PMI can be removed.
Know the key differences between conventional and government-backed loans: conventional = no government guarantee, requires PMI below 20% down. FHA = government insured, lower credit requirements. VA = government guaranteed, no down payment. PMI can be removed from conventional loans at 20% equity but MIP on FHA loans cannot easily be removed.
Related Terms
Related Concepts
In the context of foreclosure, a deed transfers ownership of the foreclosed property to the new owner, typically the buyer at a foreclosure sale.
A trustee sale is a type of foreclosure where a trustee, appointed under a deed of trust, sells the property at auction to satisfy the debt.
Foreclosure is the legal process by which a lender takes possession of a property when a borrower fails to make mortgage payments. It allows the lender to sell the property to recover the outstanding debt.
An FHA loan is a mortgage insured by the Federal Housing Administration that allows lower down payments and credit scores than conventional loans. It is designed to help first-time homebuyers and borrowers with limited resources.
A VA loan is a mortgage guaranteed by the Department of Veterans Affairs available to eligible veterans, active-duty service members, and surviving spouses. It offers no down payment and no private mortgage insurance requirements.
Frequently Asked Questions
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