A conventional mortgage is a type of home loan that is not insured or guaranteed by the government. It is a traditional home loan that follows the guidelines set by Fannie Mae and Freddie Mac, two government-sponsored enterprises that provide a secondary market for mortgage lenders.
To qualify for a conventional mortgage, borrowers typically need to have a good credit score, a stable income, and a down payment of at least 3% of the home's purchase price.
Conventional mortgages are available in various loan terms, including 15-year, 20-year, and 30-year terms. Borrowers can choose the term that best meets their financial needs and goals. For example, a 15-year loan may have a lower interest rate but higher monthly payments, while a 30-year loan may have a higher interest rate but lower monthly payments.
One of the advantages of a conventional mortgage is that it allows borrowers to remove private mortgage insurance (PMI) once they reach a certain level of equity in their home. PMI is required for borrowers who put down less than 20% as a down payment and is designed to protect the lender in case the borrower defaults on the loan. Removing PMI can significantly reduce the overall cost of homeownership.
Another advantage of a conventional mortgage is that it offers more flexibility in terms of property type. Borrowers can use a conventional mortgage to purchase a single-family home, a multi-family home, a vacation home, or an investment property.
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