Mortgage 101 – Conventional Mortgage Loan
This week we wanted to highlight some of the advantages and disadvantages of a conventional mortgage loan and explain some of the factors that come into play when Marquee Mortgage works with you and/or your buyers to find the best program for their specific situation(s).
Every buyer is different – Marquee Mortgage takes pride in ensuring that every buyer that we work with gets the right loan program for them.
Conventional – Advantages
Total Cost – The primary advantages of a conventional mortgage loan compared to an FHA mortgage loan is the lack of an upfront mortgage insurance component. The elimination of this upfront component can immediately save a borrower thousands of dollars compared to an FHA mortgage loan.
While conventional mortgage loans do still have a monthly mortgage insurance (known as PMI) requirement for LTV’s of greater than 80%, the amount of the monthly MI payment is based on a variety of factors such as LTV, and mid-FICO score which can mean a much lower monthly MI payment when compared to FHA mortgage loans which are based on a flat percentage of the loan amount.
In addition to all of the aforementioned advantages, borrowers with a conventional mortgage loan can have the monthly mortgage insurance premium removed completely from their loan once their loan reaches an LTV of 80% through a combination of normal payments and property appreciation.
Conventional mortgage loans offer:
- Lower overall cost of borrowing
- Higher maximum loan amount (conventional maximum of $417,000 is approximately $80,000 higher than the maximum FHA loan amount for Maricopa County)
- No upfront mortgage insurance premium
- LTV’s as high as 97% for owner occupied primary residence purchases
- Elimination of monthly mortgage insurance requirement for LTV’s < 80%
- Impound accounts for homeowner’s insurance and property taxes are not required for primary residence purchases at 80% LTV or less
Conventional – Disadvantages
- Higher minimum mid-FICO and minimum down payment requirements – Marquee Mortgage LLC can provide FHA financing for borrowers down to a 580 mid-FICO score, the minimum mid-FICO requirement on a conventional purchase is 620.
- Lower DTI thresholds – For those borrowers with higher monthly DTI (debt to income) ratios, FHA is generally a better option as conventional mortgage loans offer less room with regard to monthly DTI. FHA mortgage loans can be closed up to a 59% monthly DTI while DTI for a conventional mortgage loan is generally capped around 45%.
For more information regarding conventional mortgage loan guidelines check out our conventional financing outlines: