Are you thinking about purchasing a home in Minnesota or western Wisconsin, but need help finding the best mortgage solution? Below, we outline conventional mortgage loans, one of the most common types of mortgages selected by home buyers.
Remember, every buyer is different, so it’s important that you work with a professional who understands your background. Your REALTOR® can recommend a mortgage loan officer or financial advisor who can provide a personalized, professional assessment of your finances.
What is a conventional loan? Who qualifies for them?
Unlike VA loans or FHA loans, conventional mortgages are not guaranteed or insured by the federal government. Because the government does not guarantee them, conventional loans are considered riskier for lenders to take on.
What is the minimum down payment required for a conventional loan?
While the minimum down payment required for a conventional loan is 5 percent, many conventional loan borrowers put down more at closing – and lenders will suggest buyers put down 20 percent if they’re able.
Avoiding mortgage insurance is a major benefit to selecting a conventional loan. Why? Conventional loan borrowers who put down less than 20 percent at closing will be required to pay private mortgage insurance on their loan until their loan-to-value ratio reaches 80 percent. By paying more at closing, borrowers can avoid paying mortgage insurance altogether, which can save thousands of dollars – or even tens of thousands of dollars – in the long-term.
Conforming and non-conforming loans
There are two types of conventional loans – conforming and non-conforming. The main difference between these two types is that conforming loans have a loan limit that is designated based on the cost of living in the county where the loan is originated. If a loan “conforms” to the loan ceiling, it is called a conforming loan.
In 2020, the conforming loan limit for a single-family home in Minnesota or Wisconsin is $510,400.
If the loan exceeds the loan ceiling, it will be a non-conforming (or jumbo) loan. Jumbo loans are riskier, so borrowers who apply for one should:
- Have a higher down payment
- Expect to pay a higher interest rate
Ready to get started?
Are you ready to move past the search phase, and into the homebuying phase? Our local experts help buyers get financing every day and we’d love to offer insights and support as you find your dream home.
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