Conventional FAQ

What is a conventional mortgage?

• A conventional mortgage is a home loan that is not insured or guaranteed by the government, such as the FHA (Federal Housing Administration) or VA (Veterans Affairs) loans.

How do conventional mortgages differ from government-backed loans?

• Conventional mortgages are not insured or guaranteed by the government, so lenders typically require higher credit scores and larger down payments compared to government-backed loans.

What are the typical requirements for a conventional mortgage?

• Requirements often include a good credit score (usually above 620), a stable income, a down payment (typically ranging from 3% to 20% of the home’s purchase price), and manageable debt-to-income ratios.

What are the advantages of a conventional mortgage?

• Advantages may include potentially lower interest rates compared to government-backed loans for borrowers with strong credit, flexible terms and loan amounts, and no upfront mortgage insurance premiums (unlike FHA loans).

What are the disadvantages of a conventional mortgage?

• Disadvantages can include stricter qualification criteria, higher down payment requirements, and potentially higher interest rates for borrowers with less-than-perfect credit.

How does private mortgage insurance (PMI) work with conventional loans?

• PMI is typically required for conventional loans when the down payment is less than 20% of the home’s purchase price. It protects the lender in case the borrower defaults on the loan.

Can you cancel PMI on a conventional mortgage?

• Yes, once your loan-to-value ratio reaches 80% (meaning you have paid down 20% of the home’s value), you can request to cancel PMI. It is automatically canceled once the loan-to-value ratio reaches 78%.

What factors influence the interest rate on a conventional mortgage?

• Factors include your credit score, down payment amount, loan term, current market conditions, and the lender’s policies.

What is the process for applying for a conventional mortgage?

• The process typically involves pre-qualification or pre-approval, submitting financial documents (income verification, bank statements, etc.), selecting a loan program, and completing the underwriting process before closing.

Are there different types of conventional mortgage loans?

• Yes, common types include fixed-rate mortgages (where the interest rate remains the same throughout the loan term) and adjustable-rate mortgages (where the interest rate may change periodically).