What is a conventional mortgage loan? This is the kind of loan that is not guaranteed or insured by the government, and instead, it will be the borrower who will shoulder the PMI of the Private Mortgage Insurance if you put a downpayment of less than 20% on a conventional loan.
Why is the PMI necessary for a mortgage? This is the lender’s protection when you default on your loan payments. The PMI will depend on the type of your loan, your downpayment, and your credit score.
Conventional mortgage loans are by far the most common home financing option in the market as they give the buyer more flexibility. On the flip side, this kind of loan offers greater risk because the federal government is not backing it up.
It may be a tad harder to get approved for a conventional mortgage loan as they have stricter requirements than an FHA loan, and you will need at least 620 in your credit score. How is your debt to income ratio? If it is 50% or less, then a conventional mortgage loan may be for you.
Let us delve deeper into the down payment scheme. Before you turn your back on conventional mortgage loans, you can put in a down payment of as low as 3% if you are a first-time buyer and depending on your situation and the property you will get.
Continuing on down payments, if this isn’t your first time and you don’t qualify in the 80% median income in your area, you will be required to put in a 5% down payment. If the housing unit you buy is not a single-family home, you may be required to pay 15% of the down payment. Let us know if you don’t belong in those categories to help you learn more about down payments. You can also use our mortgage calculators to give you an idea of what your mortgage will look like and how much you need to prepare as a down payment.
