What is a common characteristic of conventional loans?

A defining characteristic of conventional loans is typically a 20% down payment requirement. This standard reflects the traditional expectations set by lenders to mitigate their risk. By requesting a significant down payment, lenders aim to ensure that borrowers have a vested interest in the property and are financially capable of handling substantial financial commitments. This amount can also help in avoiding private mortgage insurance (PMI), which is often required for loans with lower down payments.

Though there can be variations depending on the specific loan program and lender, in conventional loans, the 20% down payment has historically been seen as a benchmark for securing favorable loan terms and reduced overall borrowing costs. As a result, this requirement plays a crucial role in shaping the landscape of conventional financing options in the mortgage market.