Define: Conventional Loan

A conventional loan is a type of mortgage loan that is not insured or guaranteed by a government agency, such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). It is typically offered by private lenders and follows guidelines set by Fannie Mae and Freddie Mac.

To qualify for a conventional loan, you generally need a good credit score (typically above 620), a stable income, a low debt-to-income ratio, and a down payment of at least 3% to 20% of the home’s purchase price.

The main difference between a conventional loan and an FHA loan is that conventional loans are not insured by the government, while FHA loans are. This means that conventional loans typically have stricter qualification requirements and may require a higher down payment, but they also offer more flexibility in terms of loan amounts and property types.

Yes, you can use a conventional loan to buy an investment property. However, the requirements for financing an investment property are usually stricter than for a primary residence. Lenders may require a higher down payment and a lower debt-to-income ratio.

Yes, you can use a conventional loan to refinance your existing mortgage. Refinancing with a conventional loan can help you lower your interest rate, change your loan term, or access your home’s equity.

Private mortgage insurance (PMI) is a type of insurance that protects the lender in case the borrower defaults on the loan. If you make a down payment of less than 20% on a conventional loan, you will typically be required to pay PMI until you reach a certain amount of equity in the home.

Yes, you can cancel PMI on your conventional loan once you have reached a certain amount of equity in the home, usually when your loan-to-value ratio (LTV) reaches 80% or less. However, you may need to request the cancellation and meet certain criteria, such as having a good payment history and obtaining a new appraisal.

While conventional loans generally require a good credit score, some lenders may offer options for borrowers with lower credit scores. However, you may need to pay a higher interest rate or provide a larger down payment to compensate for the increased risk.

Yes, you can use gift funds for your down payment on a conventional loan. However, there are specific guidelines and documentation requirements that must be followed to ensure the funds are considered acceptable by the lender.

Most conventional loans do not have prepayment penalties, which means you can pay off your loan early without incurring any additional fees. However, it is always recommended to review your loan agreement or consult with your lender to confirm the terms and conditions regarding early repayment.