What is a mortgage that does not require mortgage insurance but may have a higher interest rate?

A conventional mortgage is a type of mortgage that is not insured or guaranteed by the federal government, unlike FHA and VA loans, which are government-backed. One of the defining features of a conventional mortgage is that it can be obtained without the need for private mortgage insurance (PMI) if the borrower is able to make a down payment that meets certain criteria, typically 20% or more. However, when a lower down payment is made, lenders may require PMI to protect themselves against the risk of borrower default.

In the scenario described, it is noted that a conventional mortgage may have a higher interest rate because it lacks the protections offered by government-insured loans. Higher interest rates can be a trade-off for borrowers who choose to avoid PMI or those who may not qualify for lower-rate government-backed loans. This flexibility allows conventional loans to cater to a wider range of borrowers, depending on their financial situation or down payment ability.

The other options described—FHA, VA, and subprime mortgages—have different characteristics, including government backing and specific requirements that usually involve lower rates or insurance. FHA loans, for instance, typically require mortgage insurance regardless of the down payment size, and VA loans are exclusively for veterans with favorable terms and do not require mortgage