Conventional Loans

A Conventional Mortgage loan is backed by Fannie Mae or Freddie Mac and is not guaranteed by a government organization, such as the Federal Housing Administration or the Department of Veterans Affairs.  The standard qualifying criteria for a government-backed loan and a Conventional loan are somewhat similar.  However, Conventional loans can be more challenging to obtain, due to its more rigorous requirements for debt ratios, credit history, assets and higher down payments.  The typical maximum loan to value or LTV for Conventional loans is 95%. However, there are some circumstances in which a borrower can obtain a 97% LTV Conventional loan or perhaps even higher.

Mortgage insurance or MI is charged monthly for any LTV over 80.00% and can remain in force for up to 10 years, unless early MI removal is requested and granted by the servicing lender.  Conventional loans also have a Lender-Paid Mortgage Insurance component or LPMI, in which the lender absorbs the monthly cost of MI and the borrower pays a moderately elevated interest rate.  Conventional loans allow for the seller to pay a substantial portion of the buyer’s closing costs and prepaids.  Currently, a seller can pay up to 3% of the home’s purchase price.