What is a Conventional Mortgage?
Unlike FHA or VA mortgage loans, conventional mortgage loans are not insured against losses by the U.S. Government. Rather, conventional mortgage loans are underwritten based on guidelines issued by the Federal National Mortgage Association, also known as Fannie Mae, and the Federal Home Loan Mortgage Corporation, also known as Freddie Mac.
What are the benefits of a Conventional Mortgage?
- Lower total cost over the life of the mortgage loan when compared to an FHA mortgage loan. This is due to the lack of an upfront mortgage insurance component and due to the fact that in those cases where monthly mortgage insurance (PMI) is required, the monthly PMI is typically less expensive than FHA MIP.
- Private mortgage insurance can be removed once the outstanding mortgage loan balance reaches 80% or less of the homes appraised value.
- Conventional mortgage loans can be used for 2nd homes and investment properties
- Higher maximum loan amount.
- The ability for borrowers to waive escrow accounts should they choose to pay their property taxes and homeowner’s insurance themselves.
- Single Family Residences (SFR), 2-4 Family homes, and condos are all eligible property types.
- A variety of amortization options are available including 30 year fixed rate, 15 year fixed rate, and some ARM’s.
What are some of the requirements for a conventional mortgage?
- The maximum LTV of a conventional mortgage loan is 97% if at least one of the borrowers is a first time home buyer. Otherwise the maximum LTV is 95%.
- The minimum mid-FICO for a conventional mortgage loan is typically higher than that of FHA and VA mortgage loans.
- For conventional mortgage loans which will require private mortgage insurance (those with an LTV of 80% or higher) the maximum allowable DTI is 45%.
- If you have had a previous foreclosure you must wait 7 years in order to obtain a conventional mortgage loan as opposed to 3 years for an FHA mortgage loan.
- If you have had a prior short sale the amount of time you must wait to obtain a conventional mortgage loan is 4 years from the date that the short sale was recorded.
- If you have had a prior Chapter 7 Bankruptcy you must wait 4 years before obtaining a conventional mortgage loan as opposed to the 2 year seasoning requirement for an FHA mortgage loan.
- If you have had a prior Chapter 13 Bankruptcy you must wait two years from the discharge of the bankruptcy prior to obtaining a conventional mortgage loan.
What is Private Mortgage Insurance?
Private mortgage insurance (PMI) is a policy that protects lenders against losses that result from defaults on home mortgages and is required on every conventional mortgage loan with an LTV of 80% or higher. Unlike FHA mortgage loans, the amount of the monthly mortgage insurance payment is not based on a percentage of the loan amount but rather is determined by a private mortgage insurance underwriter. The private mortgage insurance underwriter will review your credit score, LTV, and DTI in order to determine the total monthly mortgage insurance payment.
Under what circumstances will I be required to pay PMI?
Private mortgage insurance is required on any conventional mortgage loan with an LTV of 80% or higher.
How long would I have to pay PMI?
Once a borrower’s mortgage loan balance reaches 80% or less of the current value of their home, they can request that the PMI component of their monthly payment be removed. Provided that the value of your home can be confirmed, the PMI Company will remove the PMI requirement from your loan.
Can I get rid of the PMI if I refinance?
Yes, but only if the LTV on your new mortgage loan were 80% or less.
What is the maximum loan amount for a Conventional mortgage?
The maximum loan amount for a conventional mortgage varies by county and property type.
| County | Single Family | Duplex | Tri-plex | Four-plex |
|---|---|---|---|---|
| Apache | $647,200 | $828,700 | $1,001,650 | $1,244,850 |
| Cochise | $647,200 | $828,700 | $1,001,650 | $1,244,850 |
| Coconino | $647,200 | $828,700 | $1,001,650 | $1,244,850 |
| Gila | $647,200 | $828,700 | $1,001,650 | $1,244,850 |
| Graham | $647,200 | $828,700 | $1,001,650 | $1,244,850 |
| Greenlee | $647,200 | $828,700 | $1,001,650 | $1,244,850 |
| La Paz | $647,200 | $828,700 | $1,001,650 | $1,244,850 |
| Maricopa | $647,200 | $828,700 | $1,001,650 | $1,244,850 |
| Mohave | $647,200 | $828,700 | $1,001,650 | $1,244,850 |
| Navajo | $647,200 | $828,700 | $1,001,650 | $1,244,850 |
| Pima | $647,200 | $828,700 | $1,001,650 | $1,244,850 |
| Pinal | $647,200 | $828,700 | $1,001,650 | $1,244,850 |
| Santa Cruz | $647,200 | $828,700 | $1,001,650 | $1,244,850 |
| Yavapai | $647,200 | $828,700 | $1,001,650 | $1,244,850 |
| Yuma | $647,200 | $828,700 | $1,001,650 | $1,244,850 |
