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Conventional Mortgages

Conventional Home Loans are not insured by a federal agency, such as the Federal Housing Administration, the U.S. Department of Veterans Affairs or the U.S. Department of Agriculture. Requirements for conventional mortgages are stricter because of the increased default risk.

Conventional loans have a variety of options: fixed-rate, ARMs, conforming, non-conforming, and jumbo.

Down Payment and Equity

Lenders usually require a 20 percent down payment, so that borrowers already have equity in the property by the time they sign the loan documents. Equity is the portion of the home the borrower owns outright. It helps if the borrower needs to sell during a housing market downturn. If the borrower owes more than the property is worth, they could end up trapped in a home they cannot afford.

Security

Most conventional mortgages are fixed-rate products meaning the interest is locked in for the life of the loan. Homeowners do have the flexibility to refinance to take advantage of lower rates though.

Benefits

The stability of a conventional mortgage provides stability by trading flexibility for predictability. Because the borrower must make the exact payments every month and because they can refinance to take advantage of falling interest rates.