Conventional Loans

Conventional loans are loans that are not part of any government housing program such as FHA or VA.

In a conventional loan, typically if you are putting less than 20% down, the lender may require PMI due to the risk of the borrower defaulting and the property value dropping, thus not being able to cover the debt of the amount that the borrower owes to the lender.

The Private Mortgage Insurance or PMI would act as the FHA or VA would for a non-conventional loan—it insures the lender in case of default.

The loan to value ratio is the ratio of the amount of money you borrow compared to the value of the property. For example, if you put 5% down, you will have a loan of 95% of the value of the property, or an LTV of 95%. A higher loan to value ratio represents more risk for the lender.