This is the most common type of mortgage in the U.S. for a reason.
Conventional Loans are not backed by the government. Instead, they follow guidelines set by Fannie Mae and Freddie Mac. Because they are designed for borrowers with stronger financial profiles, they offer the most flexibility in terms of property types and mortgage insurance options.
If you have good credit and stable income, this is often your lowest-cost option over the long term.
How the Conventional Loan Works
Unlike FHA or VA loans, Conventional loans reward you for having a higher credit score and a larger down payment.
- Down Payment Flexibility: Qualified first-time buyers can put down as little as 3%. (Standard is 5%).
- Removable PMI: Private Mortgage Insurance (PMI) is required if you put down less than 20%, but it automatically drops off once you build 22% equity (or you can request removal at 20%).
- Property Freedom: You can use this loan for a primary home, a second home/vacation property, or an investment rental.
Conventional vs. FHA Financing
| Feature | Conventional Loan | FHA Loan |
|---|---|---|
| Mortgage Insurance | Temporary (Removable at 20% equity) | Permanent (Usually life of loan) |
| Upfront Fees | None | 1.75% Added to Loan Amount |
| Credit Score Impact | High (Better score = Better rate) | Low (Rate is similar for all scores) |
| Property Use | Primary, Second Home, Investment | Primary Residence Only |
| Appraisal Standards | Standard (Value & Safety) | Strict (Safety, Soundness, Sanitary) |
Is This Program Right for You?
Conventional loans are the "Gold Standard" if you fit the profile. It is ideal if:
- You Have Good Credit: Your score is 680+ (740+ gets you the absolute best pricing).
- You Have a Larger Down Payment: You can put down 5%, 10%, or even 20% to lower your monthly payment.
- You Want to Invest: You are buying a property you won't live in full-time.
- You Want to Avoid Forever-Fees: You plan to build equity quickly and want to get rid of mortgage insurance as soon as possible.
Program Guidelines & Requirements
- Credit Score: Minimum 620. (But rates are significantly better above 680-700).
- Down Payment: 3% for first-time buyers; 5% for others. Investment properties typically require 15-20%.
- Debt-to-Income (DTI): Typically capped at 43%, though we can go up to 50% with strong compensating factors (like high reserves).
- Loan Limits: Follows the annual "Conforming Loan Limit" (e.g., ~$766,550 in most areas for 2024).
The Application Process
- Preparation: We recommend pulling your credit 60 days early to fix any small errors.
- Pre-Approval: We review your W-2s, pay stubs, and assets to determine your budget.
- Property Selection: You can choose from a wide range of properties, including some condos that FHA might reject.
- Closing: Timeline is typically 30–45 days.
To learn more, read our complete guide to Conventional Mortgage Loans →
