A classic mortgage built on simplicity — the MLM way.
Conventional loans are the most common type of mortgage, and they are backed by Fannie Mae and Freddie Mac. These programs set the standards for many lenders across the country and give borrowers reliable and flexible options when buying or refinancing a home.
Although conventional loans are available with credit scores starting at 640, they usually become the better long-term value when credit scores reach 700 or higher. For borrowers with scores below 700, government loan programs often offer more affordable solutions, even though conventional loans remain an option.
When it comes to down payments, conventional loans generally require at least 3% down. The most common choices are 3, 5, 10, 15, or 20 percent. Kent often explains it like this: with 5% down, private mortgage insurance is required, which allows you to buy without a full 20% down payment. At this level, the monthly PMI cost is higher. With 10% down, PMI becomes more manageable and is often a better fit for families. By 15% down, the cost of PMI is so small it is barely noticeable in the overall payment. At 20% down, PMI is removed altogether, making it the most cost-effective scenario.
At Mountain Lifestyles Mortgage, not only do we offer competitive interest rates, but we also feature some of the least expensive PMI rates available. This makes homeownership more affordable, especially for clients who are not putting 20% down. The good news is that PMI does not last forever. In most cases it is removed once the loan balance reaches about 80% of the original purchase price or appraised value.
Our team has decades of experience with both government and conventional loans, which means we can explain the benefits and the tradeoffs in a way that is simple and clear. Every borrower’s situation is unique, and our job is to guide you toward the loan that provides the most value and confidence for your home.
Conventional loans are often compared with government loans, but they work very differently. Conventional loans typically carry slightly higher interest rates than government loans, yet government loans usually require additional fees that reduce immediate equity. These fees, known as upfront mortgage insurance premiums (MIP), are charged as a percentage of the loan amount and do not apply to conventional financing.
With strong credit, conventional loans may also offer lower monthly mortgage insurance costs compared to government options. This means that even though the rate may be a bit higher, conventional loans can often represent the better overall value for well-qualified borrowers.
At Mountain Lifestyles Mortgage, we appreciate both conventional and government loans for different reasons. As Kent likes to say, “It is like comparing an orange and a bowling ball. They are both round, yet outside of that, they have very few similarities.”
While a 5% or more down payment is the traditional starting point for conventional loans, a 3% down payment program can be an excellent choice for those with strong credit and limited funds available. If this sounds like you, ask us about our special program that is periodically offered where our investors contribute 2% down for qualifying first time homebuyers at certain income levels. This program effectively turns a 3% down payment into just 1% down, plus closing costs. When available, this 1% conventional loan option requires meeting 80% AMI income limits and/or being a first time homebuyer.
Conventional loans are designed for borrowers who have a solid financial foundation. In most cases, this means having a good credit score (generally above 640), a steady employment history, and a debt-to-income ratio that does not exceed 50%. While those are the basics, lenders also look at other details like your income, assets, and the appraised value of the home you are purchasing.
Since it proves more complex than it seems, calculating income is best done with the help of a loan professional who understands the guidelines. Specific requirements can vary, so let us walk you through your options and help you determine the best path to homeownership.
Conventional loans can be an excellent choice for many homebuyers. They often offer competitive interest rates, term flexibility, and the ability to finance various property types. However, whether a conventional loan is the best option depends on your financial situation, credit history, and preferences. It's always a good idea to explore multiple loan options and consult a mortgage professional to determine the best fit for your needs.
- Higher Loan Limits: Conventional loans generally offer higher loan limits compared to FHA loans. This can be beneficial if you are looking to finance a more expensive property or live in a high-cost area, as it allows you to borrow a larger amount.
- No Upfront Mortgage Insurance: Unlike FHA loans, Conventional loans do not require upfront mortgage insurance premiums. This means you can save on the upfront costs associated with the loan and potentially lower your overall loan amount.
- Flexible Mortgage Insurance Options: With a Conventional loan, once you reach a loan-to-value (LTV) ratio of 80% or less, you have the option to cancel private mortgage insurance (PMI) or request its removal. This can result in significant savings over time compared to FHA loans, which typically require mortgage insurance for the entire loan term.
- More Lenient Property Standards: Conventional loans generally have more flexibility when it comes to property condition and appraisal requirements. FHA loans often have stricter property standards, which could limit your options when purchasing a home that needs repairs or renovations.
It's important to note that both loan types have their own advantages and considerations, and the right choice depends on your specific financial situation and goals. Consulting with a mortgage professional can help you evaluate the options and determine the best fit for your needs.