A conventional loan may require a borrower to pay mortgage insurance in case a down payment is chosen to be lower than 20%. Check what mortgage insurance covers and you’ll realize that this requirement was created to help the lenders protect their money. It’s due to the fact that conventional loans allow you to make a down payment as low as 3%.
That is why people who choose to pay less than 20% of the house price at the beginning are required to pay private mortgage insurance. According to the conventional loans requirements, this insurance is included in your monthly mortgage payments. Once you cover the minimal 20% level or create 20% equity in your house, you can stop paying this insurance.
(Find our explanation what home equity is to know when you’ve reached this minimal level.) It’s beneficial for you to make higher payments to cover it as soon as possible.
A conventional loan is a good option for people who have a high credit score, so they can qualify for lower interest rate. In such case, you will have not so high monthly payments, even if you have to pay mortgage insurance.