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Question 1
What is the maximum LTV ratio typically allowed for a conventional loan without requiring Private Mortgage Insurance (PMI)?
Answer: 80% LTV. When the borrower's down payment is at least 20% (LTV at or below 80%), PMI is not required on a conventional loan.
Question 2
What distinguishes a conforming conventional loan from a non-conforming conventional loan?
Answer: A conforming loan meets Fannie Mae and Freddie Mac purchase guidelines, including loan limits set by the FHFA. A non-conforming loan (such as a jumbo loan) exceeds those limits or fails to meet other GSE guidelines.
Question 3
Under what circumstances can a borrower cancel PMI on a conventional loan by law?
Answer: Under the Homeowners Protection Act (HPA), borrowers can request PMI cancellation when the loan balance reaches 80% of the original property value, and PMI must be automatically terminated when the balance reaches 78% of the original value.
Question 4
What is the primary difference between a 'portfolio loan' and a conventional conforming loan?
Answer: A portfolio loan is originated and held on the lender's own books rather than sold to Fannie Mae or Freddie Mac. Because it is not sold on the secondary market, it does not need to meet GSE guidelines.
Question 5
What is the term for a conventional loan that exceeds the conforming loan limits set by the FHFA?
Answer: A jumbo loan (also called a non-conforming loan). Because it exceeds FHFA conforming limits, it cannot be purchased by Fannie Mae or Freddie Mac and typically carries stricter credit and down payment requirements.