Conventional Loans: Traditional Mortgage Financing

Conventional loans are the most common type of mortgage, offering competitive rates and flexible terms without government backing. Whether you're buying your first home or refinancing, conventional loans provide options for borrowers with good credit and stable income.

What Are Conventional Loans?

Conventional loans are mortgages that aren't insured or guaranteed by the government. Instead, they follow guidelines set by Fannie Mae and Freddie Mac, the government-sponsored enterprises that purchase mortgages from lenders.

Key Features

Down Payment: As low as 3%
Credit Score: 620 minimum
Loan Limits: Up to $766,550 (2024)
Terms: 10, 15, 20, or 30 years
Property Types: Wide variety accepted

Benefits of Conventional Loans

No Upfront Mortgage Insurance

Unlike FHA loans, conventional loans don't require upfront mortgage insurance premiums, saving you thousands at closing.

Cancelable PMI

Private Mortgage Insurance can be removed once you reach 20% equity, either through payments or appreciation.

Competitive Interest Rates

With good credit, conventional loans often offer competitive rates, especially compared to government loans.

Flexible Terms

Choose from various loan terms and payment structures to match your financial goals.

Higher Loan Limits

Conventional loans offer higher limits than FHA, with jumbo options available for luxury properties.

Down Payment Requirements

Primary Residence

First-time buyers: 3% minimum
Repeat buyers: 5% minimum typical
Best rates: 20% or more

Second Homes

Minimum: 10% down
Typical: 20-30% for best terms

Investment Properties

Single-family: 15-20% minimum
Multi-unit: 25% minimum

Down Payment Sources

Personal savings
Gift funds from family
Down payment assistance programs
401(k) loans (carefully consider)
Sale of current home

Credit Score Requirements

Minimum Scores

620: Basic eligibility
680: Better rates available
740+: Best rates and terms

Credit Factors

Payment history (35%)
Credit utilization (30%)
Length of history (15%)
Credit mix (10%)
New credit (10%)

Qualifying for a Conventional Loan

Income Requirements

Stable Employment: 2 years preferred
Income Types: W-2, self-employed, commission
Documentation: Tax returns, pay stubs, bank statements

Debt-to-Income Ratio

Front-end: 28% maximum (housing costs)
Back-end: 36-45% maximum (all debts)
Compensating factors: Can allow higher ratios

Asset Requirements

Down payment funds
Closing costs (2-5%)
Reserves (2-6 months PITI)
Seasoned funds preferred

Private Mortgage Insurance (PMI)

When PMI is Required

Less than 20% down payment
Remains until 20% equity reached

PMI Costs

Typical Range: 0.5-1% annually
Credit Impact: Higher scores = lower PMI
Payment Options: Monthly, upfront, or split

Removing PMI

Automatic: At 78% LTV
By Request: At 80% LTV
Through Appraisal: If home appreciates

The Application Process

1. Pre-Qualification (15 minutes)

Basic financial review
Estimate loan amount
No credit check
Free service

2. prequalification (1-2 hours)

Full application
Credit check
Document review
Approval letter issued

3. Processing (1-2 weeks)

Document verification
Employment check
Asset verification
Title search ordered

4. Appraisal (1 week)

Property valuation
Condition assessment
Comparables analysis
Value confirmation

5. Underwriting (3-5 days)

Final review
Condition clearing
Final approval
Clear to close

6. Closing (1 day)

Sign documents
Fund loan
Record deed
Receive keys

Conventional vs. Other Loan Types

Conventional vs. FHA

Conventional Advantages:

No upfront MIP
PMI removable
Higher loan limits
No property restrictions

FHA Advantages:

Lower credit requirements
3.5% down for all buyers
More flexible DTI

Conventional vs. VA

Conventional Advantages:

No funding fee
Broader availability
Investment properties allowed

VA Advantages:

0% down payment
No PMI
Assumable loans

Special Conventional Programs

HomeReady Mortgage

3% down payment
Income limits apply
Reduced PMI rates
First-time buyer friendly

Home Possible

3% down payment
Flexible funding sources
Homebuyer education
Low to moderate income

Conventional 97

3% down for first-time buyers
Standard PMI rates
Gift funds allowed
No income limits

Tips for Getting Approved

Improve Your Credit

Pay down credit cards
Dispute errors
Avoid new credit
Make all payments on time

Strengthen Your Application

Save more down payment
Reduce debt-to-income
Document all income
Maintain employment

Choose the Right Lender

Compare multiple quotes
Check lender reviews
Understand all fees
Ask about specials

Costs and Fees

Closing Costs (2-5% of loan)

Origination fees
Appraisal fee
Title insurance
Recording fees
Prepaid items

Ongoing Costs

Principal & interest
Property taxes
Homeowners insurance
PMI (if applicable)
HOA fees (if applicable)

Ready to Apply?

Conventional loans offer excellent opportunities for qualified borrowers. Our experts can help you:

Determine if conventional is right for you
Calculate your buying power
Get prequalified quickly
Find the best rates

Take the Next Step:

Get prequalified - Start your application
Calculate Payments - Estimate monthly costs
Check Rates - See today's rates
Schedule Consultation - Speak with an expert

Frequently Asked Questions

Q: What's the minimum down payment for a conventional loan? A: As little as 3% for qualified first-time homebuyers on a primary residence.

Q: How is PMI calculated? A: PMI typically costs 0.5-1% of your loan amount annually, divided into monthly payments.

Q: Can I use a conventional loan for investment property? A: Yes, with typically 15-25% down depending on the property type.

Q: How long does conventional loan approval take? A: Usually 30-45 days from application to closing, sometimes faster.

Q: Can gift funds be used for down payment? A: Yes, gift funds from family members are acceptable for your entire down payment.

Ready to explore conventional loan options? Our experienced team will guide you through every step. Start your application or contact us for personalized assistance.