Conventional loans are the most common in the mortgage industry. They’re funded by private financial lenders and then sold to government-sponsored enterprises like Fannie Mae and Freddie Mac.
There’s a reason why conventional loans are so popular. This type of loan has several features that make it a great choice for most people:
Private mortgage insurance (PMI) is a type of mortgage insurance unique to conventional loans. Like mortgage insurance premiums do for FHA loans, PMI protects the lender if the borrower defaults on the loan.
You’ll have to pay PMI as part of your mortgage payment if your down payment was less than 20% of the home’s value. However, you can request to remove PMI when you have 20% equity in the home. Once you’ve reached 22% home equity, PMI is often removed from your mortgage payment automatically.