Conventional Loan.
In plain English
A conventional loan is a standard mortgage from a private lender with no government insurance behind it. Because the lender carries more risk, it usually wants a higher credit score than an FHA loan. The upside: if you put down less than 20 percent and pay PMI, that PMI cancels once you reach enough equity, unlike FHA insurance, which often does not.
02The math, step by step
On a $400,000 home with 5 percent down, the loan is $380,000 and PMI at about 0.5 percent runs roughly $1,900 a year. Under the Homeowners Protection Act, the lender must drop it automatically once your balance reaches 78 percent of the home's original value, and you can request removal at 80 percent.
03What this is NOT
A conventional loan is not the same as a conforming loan. Conforming means it fits the size limits Fannie Mae and Freddie Mac buy. A conventional loan can be larger than that, which makes it a jumbo loan.
04Receipts
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