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What is a conventional uninsured loan

what is a conventional uninsured loan

A "c onventional" mortgage loan is:

neither guaranteed or insured by the Government
  • not limited as to the amount of loan fees that can be charged
  • usually long term made at prevailing market rates (15 -30 years)
  • usually carries a slightly higher interest rate than FHA or VA
  • the most common mortgage loan program in the US for 1-4 family loans
  • either "insured" or "non-insured" by private mortgage insurance (PMI)

  • Insured Versus Non-Insured

    Whether a loan is "insured" or "uninsured" depends on the Loan-to-Value Ratio.

    • The L-T-V Ratio expresses the relationship between the amount of a loan and the appraised value -or- sale price, whichever is lower. (Formula: Loan Amount/Value = LTV)

    A "noninsured" mortgage

    is a loan secured by real estate either purchased or financed with at least a 20% downpayment (equity). If less than 20% is put down on a purchase or the loan ratio is over 80%, the loan must be "insured".

    An "insured" conventional loan is:

    • over 80% loan-to-value and can be up to 95%
    • "insured" by a private mortgage insurance company with the premiums paid by the borrower to protect the lender or subsequent secondary market investors in the event of default
    • premium is paid in advance and in monthly payments
    • similar to and serves same purpose as FHA insurance and VA guarantee
    • originated by a private lender

    When a loan is partially repaid, the borrower may request that the insurance coverage be terminated by providing the lender an appraisal.

    Category: Credit

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