Conventional Loans

A conventional loan is a loan that may or may not require mortgage insurance. On a purchase if you have at least a 20% down payment, then no mortgage insurance is required. Or if a refinance you must have at least 20% in retained equity in the property being refinanced to eliminate the need for mortgage insurance. For lesser amounts of down payment or equity, mortgage insurance is required and is based on the percentage amount of your down payment. Unlike FHA loans there is no Upfront mortgage insurance fee, only a monthly fee.

Conventional loans also are different in another substantial aspect. Government insured loans generally require a minimum credit score to qualify and a higher credit score, while it may make your qualifying a little easier it has no effect on the interest rate you receive or the fees /points you pay.  In contrast conventional loans also have minimum credit score guidelines but in addition reward borrowers with higher scores and penalize those on the lower end of the spectrum.

The penalties are eliminated once credit scores go over 740. I give a full explanation on my blog, Dated August 26th 2010, showing the costs associated with each credit score. These costs are required by the quasi-government agencies Fannie MAe and Freddie Mac not by individual lenders. You will pay these fees either with a slightly higher interest rate or direct upfront fees if you want to have the lowest rate available.