What is a conventional loan?
Conventional loans normally require larger down payments than government backed loans (such as FHA and VA). Traditionally the down payment for a conventional loan is 20%, which is why many consumers favored government backed loans. To lure more borrowers to the conventional loan market, the concept of a Private Mortgage Insurance (PMI) was developed in the 1950s. If you are unable to put down 20% of the purchase price, you may be required to pay a PMI, in addition to your regular loan payment. This insurance is to protect your lender, should you default. Therefore, if you have purchased a $200,000 home, with 5% down, and financed 95%, at 6% interest for 30 years, you would expect to pay approximately $1100 a month, PLUS PMI on the 15% that you didnt put down, to make up the 20% down payment. When the principal on your property has reached 80% of loan to value, you may be able to have the PMI removed. Conventional lenders may also include prepayment penalties, which means that if you pa
