GLOSSARY — REAL ESTATE TERMS
Conventional Loan
A conventional loan is a mortgage not insured or guaranteed by a government agency, typically requiring a down payment of at least 3% to 20% and private mortgage insurance if the down payment is below 20%.
How conventional loans differ from government-backed loans
Unlike FHA or VA loans, conventional loans aren't insured by a government agency, which generally means stricter credit and income requirements but more flexibility in loan terms and property types, including investment properties and second homes.
Private mortgage insurance (PMI)
Down payments below 20% typically require private mortgage insurance, which can be removed once the loan balance reaches 78-80% of the home's original value -- unlike FHA mortgage insurance, which often lasts for the life of the loan.
WHAT TO ASK YOUR LENDER ABOUT A CONVENTIONAL LOAN
- Ask for your PMI cost at different down payment levels (5%, 10%, 20%)
- Confirm when PMI could be removed based on your loan balance
- Compare total cost against FHA financing for your specific credit profile
- Ask whether a lender-paid PMI option makes sense for your situation
What credit score do I need for a conventional loan?
Requirements vary by lender, but conventional loans generally require stronger credit than FHA loans, often starting around 620 for the best terms.
Can PMI be removed later?
Yes -- once your loan balance reaches roughly 78-80% of the original home value, you can typically request PMI removal, which isn't possible with most FHA mortgage insurance.
Is a conventional loan always cheaper than FHA?
Not always -- it depends on your credit score, down payment size, and how long you plan to keep the loan. Comparing total cost over your expected timeline with your lender is the only reliable way to know.