Menu
A conventional loan is the most common type of mortgage. It is “conforming” loan meaning that it falls into the conforming loan limits and guidelines that are set by Fannie Mae and Freddie Mac, the major investors backing conforming loans. The limits are adjusted yearly based on the market and can vary based on location as some areas have an extended limit due to the local cost of living. Conventional loans are available for owner-occupied, 2nd home, and investment transactions.
The down payment requirements for purchases vary based on the scenario of the loan. Owner occupied conventional mortgages typically require at least 5% down but if you’re a first-time home buyer buying a single unit property, it is possible to put as little as 3% down on your first purchase! Second homes and investment properties are considered a greater risk for the lender and therefore require larger down payments of 10% and 15% minimums respectively.
If the down payment less than 20% conventional loans require Private Mortgage Insurance (PMI). PMI is insurance that protects the investor in the event you default on your mortgage. You pay a PMI premium in your mortgage payment monthly in exchange for the lesser down payment. The mortgage insurance pricing varies based on the amount down payment and credit score. The good thing about PMI on conventional loans is that it is removable when you’ve gained enough equity in your property!
It may make sense to refinance your mortgage if rates have improved since your purchase. Conventional rate/term refinances require at least 5% equity in the property at the current value. If you’re wanting to do a cash-out refinance, conventional loans require a limit of 20% equity to remain on the property.
**Note – Investors update underwriting guidelines regularly, please connect regarding your specific scenario.