What Is A Conventional Mortgage?

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Now, a conventional mortgage just means that it's a mortgage

that's not insured by any government agency.

Now, there's really two types of conventional mortgages,

you've got conforming and you've got non-conforming.

Now, a conforming mortgage just means that it meets the maximum

limits of Fannie Mae or Freddie Mac.

It's important to know that if you go the route of a conventional

mortgage and you don't put 20% down then you're going to

have to pay what's known as private mortgage insurance.

Basically what that means is you are ensuring the lender

against your default.

That's the right, that means that you are paying for the

insurance in case you stop making payments. You pay but the

lender gets the benefit.

So that's one reason why homebuyers try to at least put down

20% to avoid this mortgage insurance.

Now some of the benefits of using a conventional mortgage

are they can be used for a primary house, a second house

or even an investment property.

Generally the overall borrowing costs tend to be a little

bit lower with a conventional mortgage.

And then if you don't put 20% down and you have to pay mortgage

insurance, when you get to 20% equity on the home

you can ask for the mortgage insurance to be removed.

So say for example, you put down 10% on the house initially

and then over a couple of years you get up to 20% equity

in the home.

Well, then you can ask your lender to remove that mortgage

insurance and that's going to reduce your monthly payment.

Also, if the loan is backed by Fannie Mae or Freddie Mac,

you can put down as little as 3% as a down payment for the

mortgage. Now, there are some downsides to a conventional

mortgage. The first of which is you're going to need a pretty

good credit score.

Talking about at least 620 or higher to even get approved for a conventional

mortgage. Your debt to income is going to have to be less

than 50% in general.

And then you are going to have to pay mortgage insurance

as we mentioned

If you don't put down at least 20%. And then there's going

to be a lot of documentation when it comes to verifying assets,

income, employment history and your ability to meet the down payment.

So, conventional mortgages are generally best for borrowers

that are looking to buy a home and they have good credit history,

stable income and employment history

and are able to put down at least 3%,

preferably 20% if possible.