Real Estate Term of the Day: Conventional Loan

Real Estate Term of the Day: Conventional Loan

CONVENTIONAL LOAN – a private mortgage loan not guaranteed but the VA or insured by the FHA (Barron’s Dictionary of Real Estate Terms)

  • Conventional loans generally require a higher down payment of at least 5% while FHA requires only 3.5% and VA doesn’t require a down payment
  • The down payment for a conventional loan can’t be gifted where as the down payment for an FHA loan can be
  • The interest rate of a conventional loan is tied to the borrower’s credit score
  • Interest rates for conventional loans are typically lower than FHA loans
  • Private mortgage insurance is only required with less than 20% down. Whereas, FHA now requires mortgage insurance on all loans.
  • Mortgage insurance for FHA loans does not drop off when a certain level of equity is achieved. Whereas, private mortgage insurance tied to a conventional loan automatically drops off when your equity equals 22% or more.

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