- Researching loan options? For the right buyer, conventional loans can provide many benefits.
- Borrowers with a higher down payment may want to consider a conventional loan so they can avoid paying costly mortgage insurance.
- Looking at luxury homes? Get familiar with “jumbo loans,” the type of financing used by borrowers with bigger budgets.
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 may be lower, lenders for many conventional loan borrowers will recommend buyers put down 20% 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% at closing will be required to pay private mortgage insurance on their loan until their loan-to-value ratio reaches 80%. 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 2022, the conforming loan limit for a single-family home in Minnesota or Wisconsin is $647,200, which is an increase of nearly $100,000 over 2021’s set limit. This rise is directly correlated to the rising house prices we saw in 2021, which are expected to continue (though at a slower rate) in 2022.
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.
For no-obligation help from a local mortgage expert, Edina Realty or your local agent, any time.
This information is provided for informational purposes only and does not constitute tax, or financial advice. All first mortgage products are provided by Prosperity Home Mortgage, LLC dba Edina Realty Mortgage. (877) 275-1762. Prosperity Home Mortgage, LLC products may not be available in all areas. Not all borrowers will qualify. Licensed by the NJ Department of Banking and Insurance. Licensed by the Delaware State Bank Commissioner. Also licensed in AL, AR, AZ, CO, CT, DC, FL, GA, IL, IN, KS, KY, LA, MA, MD, MI, MN, MO, MS, MT, NC, ND, NE, NH, OH, OK, OR, PA, RI, SC, SD, TN, TX, VA, WA, WI, WV and WY.NMLS #75164 (NMLS Consumer Access at http://www.nmlsconsumeraccess.org/) ©2021 Prosperity Home Mortgage, LLC dba Edina Realty Mortgage. All Rights Reserved. (07/21) Expires 01-2022
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