A Conventional Mortgage is the most common type of home loan and is not insured or guaranteed by any government agency, such as the FHA, VA, or USDA. These loans are originated and serviced by private lenders and typically conform to the underwriting standards set by Fannie Mae and Freddie Mac. Because they are backed by private capital, conventional loans often provide greater flexibility in terms of property type, loan amount, and qualifying criteria.
Conventional loans are available in both conforming and non-conforming (jumbo) limits, depending on the property’s location and price. Borrowers with strong credit, stable income, and sufficient down payment—often as low as 3% for qualified buyers—can benefit from competitive fixed or adjustable interest rates and flexible terms ranging from 10 to 30 years.
One key feature of a conventional loan is that private mortgage insurance (PMI) may be required if the down payment is less than 20%. However, unlike FHA loans, PMI can be removed once the borrower reaches 20% equity, reducing the long-term cost of the loan. Conventional financing can also be used for primary residences, second homes, and investment properties, making it a versatile choice for many borrowers.
This program is ideal for buyers who want predictable payments, strong long-term equity growth, and the ability to tailor their loan to fit their financial goals. Whether you’re purchasing a new home, refinancing to lower your rate, or taking cash out for renovations or investments, a conventional mortgage offers reliability, flexibility, and competitive pricing backed by established lending standards.
Information shown is for general reference and may vary by borrower qualifications and program terms. This is not a commitment to lend. Contact us for full loan details and eligibility requirements.
To qualify for a conventional mortgage, you’ll need to provide the following:
The amount you need for a down payment depends on your circumstances, the type of loan, and the property you’re purchasing. Here’s an overview:
If your down payment on a conventional loan is less than 20%, you’ll be required to pay for private mortgage insurance (PMI). This insurance protects the lender in case you fail to repay your loan. Unlike FHA loans, which require both an upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium (MIP), PMI is typically paid differently.
PMI is most commonly included in your monthly mortgage payment, but there are other payment options available. You may choose to pay it as a one-time upfront fee or opt for a slightly higher interest rate to cover the cost.
The good news is that PMI doesn’t last forever. Once you build up 20% equity in your home, you can request your lender to cancel the PMI. If you don’t make a request, PMI will automatically be removed once your equity reaches 22%.
Conventional mortgages come in various forms, each tailored to suit different financial needs and circumstances. Here’s a breakdown:
These loans adhere to the lending standards set by Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation). These government-created entities aim to promote affordability and stability in the mortgage market by providing liquidity to lenders, banks, and mortgage companies.
Nonconforming loans, such as jumbo loans, exceed the loan limits established by Fannie Mae and Freddie Mac. These loans typically require a higher credit score and may have stricter qualifying criteria compared to conforming loans.
A fixed-rate mortgage ensures your interest rate remains constant throughout the loan term, providing predictable monthly payments.
Also known as hybrid ARMs, these loans start with a fixed interest rate for a specific number of years, after which the rate adjusts annually based on market conditions.
Amortized loans have consistent monthly payments from the beginning to the end of the repayment term, without any balloon payments. These loans can have either fixed or adjustable interest rates.
Designed for borrowers seeking flexibility, these loans allow you to secure a mortgage with a down payment as low as 3% or 5%.
In this case, the lender retains the loan in its portfolio instead of selling it on the secondary market. These loans are ideal for borrowers with high debt-to-income (DTI) ratios or low credit scores but who can manage a higher interest rate.
Perfect for purchasing fixer-uppers, these loans let you finance the property while also covering the cost of renovations.
Lower Interest Rates
Conventional loans often come with more competitive interest rates compared to other loan types, especially if you have a strong credit history.
Flexible Down Payment Options
Borrowers have a variety of choices when it comes to down payments. Depending on the loan program and your qualifications, you can secure a home with as little as 3% down.
Greater Flexibility
Unlike government-backed loans, conventional loans don’t have to adhere to the strict rules set by federal agencies, offering borrowers more flexibility in terms of loan terms and conditions.
Conventional financing allows you to purchase a variety of property types, including single-family homes, condos, investment properties, townhomes, lofts, and vacation homes.
For primary residences, the seller can typically contribute up to 3% of the sales price toward your closing costs. If you make a down payment of more than 10%, the contribution limit increases to 6%. For investment properties, seller contributions are capped at 2%.
Raising your FICO score involves consistently paying bills on time, reducing outstanding credit card balances, and minimizing new credit inquiries. Building good credit habits over time will help improve your score.
On average, purchasing a home with conventional financing takes around 30 days. This timeline assumes you have all your documents ready, provide accurate information on your application, and respond promptly to any underwriting requests.
Conventional loans are ideal for borrowers with good credit and the ability to make the necessary down payment. However, since these loans involve stricter requirements, they may not be as accessible for first-time homebuyers. If you’re unable to qualify, a government-backed loan could be a better alternative.
Keep in mind that conventional loans can be more challenging to obtain due to the risk for lenders, but they also offer attractive benefits like competitive interest rates and flexible property options.
Information shown is for general reference and may vary by borrower qualifications and program terms. This is not a commitment to lend. Contact us for full loan details and eligibility requirements.
