A conventional mortgage loan is one that is not insured or guaranteed by an agency of the U.S. government. The lender, however, can still pursue a private mortgage insurance (PMI) policy to provide a guarantee for the fulfillment of the borrower's obligations. Typically PMI is required for all loans that have a loan to value (LTV) ratio greater than:

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PMI is typically required for conventional mortgage loans with an LTV ratio greater than 80%. This means that the borrower has made a down payment of less than 20% of the home's value. The PMI policy provides a guarantee to the lender in case the borrower defaults on the loan. Once the borrower's equity in the property reaches 20%, the PMI can be cancelled.

A Conventional Mortgage Loan Is One That Is Not Insured