Conventional loans and private mortgage insurance

Conventional financing

A conventional mortgage is not insured or guaranteed by a federal government loan program. It may nevertheless have private mortgage insurance (PMI). A conforming conventional loan meets Fannie Mae or Freddie Mac purchase standards, including the applicable loan limit; a jumbo loan exceeds that limit but can still be conventional.

Down payments and lender protection

PMI protects the lender against covered default losses, even though the borrower commonly pays for it. It neither replaces homeowners insurance nor protects the borrower against foreclosure. It can enable a smaller down payment. Conventional financing does not universally require 20% down; PMI is commonly required above 80% loan-to-value (LTV).

LTV = loan amount ÷ lending value. On a purchase, lenders generally use the lower of price and appraised value. With both at $300,000 and a $270,000 loan, LTV is $270,000 ÷ $300,000 = 90%. The $30,000 down payment equals 10%.

Ending borrower-paid PMI

For a covered loan, the general borrower-requested cancellation threshold is 80% of original value. Extra principal payments can reach that threshold sooner. Under 12 U.S.C. § 4902(a), cancellation requires a written request, good payment history, current payments, and satisfaction of the holder's requirements for evidence of no value decline and certification of no subordinate lien on the borrower's equity.

Automatic termination generally occurs at scheduled 78% of original value if the borrower is current. Merely paying the actual balance down to 78% early does not itself trigger scheduled automatic termination. Under § 4902(b), a borrower who is not current at the termination date receives termination on the first day of the first month after becoming current. Section 4902(c) supplies final termination on the first day of the month following the amortization period's midpoint if the borrower is current.

These federal protections apply to covered Florida mortgages. Coverage and special categories matter: high-risk loans have exceptions, and government mortgage insurance and lender-paid arrangements are not ordinary borrower-paid PMI. Under § 4902(d), an agreed modification requires recalculation of cancellation and termination dates. Under § 4902(f), the servicer must return unearned premiums within 45 days after cancellation or termination. Ending PMI removes an insurance cost; it does not forgive the mortgage debt.