Conventional Loans

A conventional mortgage is offered by a bank and is not insured by the federal government. This makes it a slightly higher risk for the bank, so the qualifications are more strict. For example, it may require a higher down payment or a lower debt to income ratio. Like other types of mortgage, the interest rate that you pay is based on the prime mortgage rate and your credit score. A conventional mortgage could have a fixed rate or a variable interest rate.

Down Payment

The biggest difference between a conventional mortgage and other mortgage programs is the required down payment. Government-backed mortgages have low down payment requirements to help home buyers move into a home. For example, you could get an FHA mortgage with just 3.5 percent down and a VA mortgage with no down payment. Banks have different requirements for the down payment on a conventional mortgage, ranging from 5 to 20 percent.

Conforming vs. Non-Conforming

Conventional loans can be either conforming or non-conforming. If it’s conforming, it will be for an amount under a specified maximum. In most areas, this is $417,000 for a single family home, but the amount is higher in certain areas, like Hawaii or metropolitan areas, and when you are purchasing a multi-family home. Non-conforming mortgages are for higher amounts — usually called a jumbo loan.

When you make a down payment of less than 20 percent of the value of the home, lenders will require you to purchase private mortgage insurance if you have a conventional mortgage. If you have another type of mortgage, you have to pay a mortgage insurance premium. These are similar fees, but in the conventional mortgage, you do not have to pay this once you reach 20 percent equity in your home.