Conventional financing refers to a mortgage that is purchased by Fannie Mae or Freddie Mac and is not guaranteed by the federal government, unlike other programs such as FHA and VA Financing. Conventional loans are completely made in the private sector without any government involvement. You can use conventional financing to purchase or refinance single family to four family homes.
If you are able to make a downpayment of 20% or more, choosing a conventional loan can allow you to avoid paying mortgage insurance completely (an average savings of $1000/year). However if your downpayment is less than 20%, you’ll likely still be required to pay for PMI (Private Mortgage Insurance) with conventional financing. This type of loan also typically has a shorter processing time and fewer hurdles than a government-backed loan, and can save you time in the home buying process.
If you can’t put down 20% upfront and are still required to pay PMI, your savings with conventional financing could be negligible. It may be better to choose a government loan such as FHA financing, which would allow you to put as little as 3.5% down. However PMI may still be less than the extra insurance you would have to pay for an FHA loan. It’s important to talk to a loan originator to learn which financing option would be best for your specific situation.