A conventional mortgage loan is any loan that is not insured or guaranteed by an agency of the government. Conventional mortgage loans made by lending institutions and private lenders are the predominant method in which single family residences are financed.
Usually, conventional mortgage loans are more difficult for a borrower to obtain than a mortgage under the FHA or VA programs. Conventional mortgage loans typically require a higher down payment than those required by FHA or VA, and traditionally carry a higher interest rate. Since these loans are neither insured nor guaranteed, they carry a higher risk in foreclosure than the FHA and VA loans.
Private mortgage Insurance (PMI)
To offset the higher risk, and to allow conventional lenders to compete with FHA and VA loans, private mortgage insurance was developed. Private mortgage insurance (PMI) was currently available from several competing firms. Federal lending regulators usually require this insurance whet the loan amount exceeds 80% of the value of the property. Some lenders qualify for self-insurance and in that event, do not require PMI. However, they may charge the borrower a fee for this protection. With PMI, a conventional borrower may obtain a loan up to 95% of the value of the property.
Similar topic: types of mortgages in Florida
PMI increases the cost of financing of the Florida property for you, as the borrower is required to pay a premium for the coverage. Although the monthly payment is higher, interest is charged only on the unpaid balance of the loan.
The federal Homeowners Protection Act of 1998 (HPA) requires automatic cancellation of PMI by the lender when the LTV ratio is 78% or less of the property original value. Previously, this was optional on the part of the lender.
The HPA also provides the borrower with the right to request cancellation of PMI when a mortgage has been paid down to 80% of its original appraised value or purchase price, whichever is less. The borrower also has the right to accelerate the cancellation date by making additional payments that bring the LTV ratio to 80%.
F.S. 687 limits the interest rate that may be charged for a loan. Lenders may not charge an interest rate of more than 18% on loan amounts up to 500.000$ or an interest rate of more than 25% on loan amounts above 500.000$. Charging rates in excess of those established by statute is unlawful and is referred to as usury.