Conventional Mortgage Loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan. However, the word mortgage alone, in everyday usage, is most often used to mean mortgage loan.
A home buyer or builder can obtain financing (a loan) either to purchase or secure against the property from a financial institution, such as a bank or credit union, either directly or indirectly through intermediaries. Features of mortgage loans such as the size of the loan, maturity of the loan, interest rate, method of paying off the loan, and other characteristics can vary considerably.
In many jurisdictions, though not all, it is normal for home purchases to be funded by a mortgage loan. Few individuals have enough savings or liquid funds to enable them to purchase property outright. In countries where the demand forhome ownership is highest, strong domestic markets for mortgages have developed.
The conventional loan is typically made by institutional lenders such as savings and loans and banks. This type of loan may also be made through pension funds or credit unions and it does not involve government participation in the form of insuring (like FHA) or guaranteeing (such as VA) the loan.
Typically, a conventional loan is based on an 80% loan to value ratio. That is, the lender’s first choice is to lend on 80% of the purchase price, which requires the buyer to make a 20% down payment. Conventional lenders may also offer 90% or 95% loans.