As in they conform to a set of standards set by the two congressionally chartered enterprises Fannie Mae & Freddie Mac. About Conventional Loans Fannie Mae & Freddie MacĬonventional loans are often referred to as conforming loans. PMI insures the loan for the lender in the event the homeowner defaults. PMI is often required on conventional loans when the down payment is less than 20% of the purchase price. The lender then pays from this account when the bills are due. Since these payments are made annually (sometimes semi-annually or quarterly), your lender will hold the funds in an account called an escrow or impound account. The premium is divided by 12 and added to your monthly payment. Similarly to property taxes, homeowners insurance can be paid annually by your lender. If you decide it’s more convenient to pay through your lender, they will divide your annual property tax amount by 12 and add the amount to your monthly home loan payment. With a conventional loan, you have the option to pay property taxes through your lender this way or pay on your own each year. Some loans, like FHA, USDA, VA, etc., require your property taxes be paid yearly by your lender. When you make a payment, the interest that has accumulated since your last payment is paid first, bringing your accrued interest balance to zero. The portion of your monthly payment that applies to and reduces your loan balance is called principal. Conventional Loan Calculator Definitions Principal
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