A conventional loan is a mortgage that is not insured or guaranteed by a government agency. Most are “conforming,” meaning they meet the standards that Fannie Mae and Freddie Mac set so that the loans can be bought and packaged into securities. Because these guidelines are standardized, conventional loans are the most common type of mortgage in the country. Bethany Sanchez (NMLS #2425491) at Sunset Home Lending helps buyers and homeowners in Scottsdale understand when a conventional loan is the right choice and how to get the best out of it.
Quick answer: Conventional loans work best for borrowers with solid credit and stable, documented income. They offer a range of down payment options, mortgage insurance you can cancel and flexible terms. This page is educational and is not a commitment to lend.
Who conventional loans tend to fit
- Borrowers with good credit who want the lowest long-term cost
- Buyers who can make a moderate or large down payment
- First-time buyers who qualify for low-down-payment conventional programs
- Buyers of primary residences, second homes or investment properties
- Borrowers who want to cancel mortgage insurance as soon as they have enough equity
Down payment options
Conventional loans offer more down payment choices than many people expect.
| Down payment level | What it typically means |
|---|---|
| Low (about 3%) | Available through certain programs, often for first-time buyers or borrowers within income limits, and requires private mortgage insurance |
| Moderate (about 5% to 15%) | Common for many buyers, with private mortgage insurance that costs less as your down payment rises |
| 20% or more | Generally no private mortgage insurance and often the best pricing |
Programs such as Fannie Mae’s HomeReady and Freddie Mac’s Home Possible are designed for lower-income and first-time borrowers and may allow low down payments with more flexible features, such as using income from non-borrowing household members or rental income from a boarder. They have income limits that vary by location.
Private mortgage insurance (PMI)
When you put down less than 20 percent, lenders usually require private mortgage insurance. The premium depends on your credit score, down payment and loan type, and it can be paid monthly, upfront or through a combination. The key advantage is that PMI on conventional loans is not permanent. You can generally request removal once your balance falls to a set percentage of the home’s original value, if you are current on payments and meet the lender’s conditions. It ends automatically at a later threshold. That can make a conventional loan far less expensive than a program with lifelong insurance.
Credit and income requirements
Underwriting for conventional loans uses automated systems that evaluate credit, income, assets, debts and the property together.
- Credit. A typical minimum is around the 620 range, but higher scores qualify for better pricing and cheaper mortgage insurance.
- Debt-to-income ratio. Many borrowers qualify with ratios in the mid-40s percent, and automated approval can allow higher ratios in some cases with strong credit or reserves.
- Income documentation. Expect pay stubs, W-2s and tax returns. Self-employed borrowers usually provide two years of returns.
- Assets and reserves. You need funds for the down payment, closing costs and sometimes reserves.
- Employment history. A steady two-year history is common, though exceptions exist.
Loan limits
Each year the Federal Housing Finance Agency (FHFA) sets conforming loan limits. The baseline limit applies in most counties, and a higher limit applies in designated high-cost areas. Loans within the limit are conforming. Loans above it are jumbo loans with separate requirements. Check the FHFA website for current limits and ask us about the limit that applies to your county.
Loan terms and rate types
- Fixed-rate loans keep the same interest rate for the life of the loan. Common terms are 30, 20 and 15 years. A shorter term means higher payments but less interest over time.
- Adjustable-rate mortgages (ARMs) have a fixed period, such as 5, 7 or 10 years, followed by adjustments. They can fit borrowers who expect to sell or refinance before the adjustment period ends, but your payment can rise later.
We do not publish rates on this website because they change often and depend on your profile. We will provide a written Loan Estimate so you can compare options.
Property types
Conventional loans are available for single-family homes, condos, townhomes, planned unit developments, and one- to four-unit properties. Condos require the building or project to meet agency guidelines, which can affect your options. Some manufactured homes are eligible under specific conditions. Appraisals ensure the property’s value supports the loan, and conventional standards are generally more flexible about repairs than FHA or VA, though serious defects can still cause problems.
Refinancing with a conventional loan
Conventional refinancing can be used to change your rate or term, remove mortgage insurance (once you have enough equity), consolidate a first and second mortgage, or take cash out. Cash-out refinances have lower maximum loan-to-value limits than purchase loans. See our home equity guide for how this compares with a HELOC or home equity loan.
Conventional vs. FHA
| Topic | Conventional | FHA |
|---|---|---|
| Credit | Better pricing with higher scores | More flexible on lower scores |
| Mortgage insurance | Cancelable, and cost varies with credit | Required, often lasting many years |
| Income limits | None for standard loans | None |
| Down payment | Low to large | Low |
| Property standards | Standard appraisal | HUD minimum property standards |
| Second homes and investments | Allowed | Not allowed |
For many borrowers with decent credit, conventional financing costs less over time. For borrowers who are still building credit or savings, FHA can be a valuable stepping stone. We compare both for you using real numbers.
How to get started
Get pre-approved or call (760) 713-3814 for a conversation. If you want to see how conventional financing fits among the options, read our loan programs overview and the first-time homebuyer guide. If your price is above the conforming limit, see jumbo loans.
Frequently asked questions
How much down payment do I need for a conventional loan?
Some conventional programs allow 3% down, and many borrowers put down 5% to 10%. Putting 20% down avoids private mortgage insurance. The right amount depends on your goals, your cash reserves and the cost of mortgage insurance.
Can I remove private mortgage insurance?
Yes. Under federal rules, private mortgage insurance on most conventional loans can be removed at your request once your loan balance reaches a set percentage of the original home value, and it ends automatically at a later point if you are current on payments. Rules and conditions apply, so confirm the details for your loan.
What credit score do I need for a conventional loan?
Conventional loans commonly require a score in the 620 range or higher, and higher scores improve pricing and reduce mortgage insurance costs. Ask us what to expect for your profile before you assume you do not qualify.
What is a conforming loan?
A conforming loan meets the guidelines of Fannie Mae and Freddie Mac, including a maximum loan amount set each year by the Federal Housing Finance Agency. Loans above that limit are called jumbo loans. See our jumbo loans page.
Can I use a conventional loan for a second home or investment property?
Yes. Conventional financing is available for primary residences, second homes and investment properties, though second homes and investment properties usually require larger down payments and stronger qualifications. Investors may also consider DSCR loans.
Should I choose a fixed-rate or adjustable-rate loan?
A fixed-rate loan keeps your principal and interest payment the same for the life of the loan, which many borrowers prefer for stability. An adjustable-rate mortgage starts with a fixed period and then adjusts, which may suit buyers who expect to move or refinance before it adjusts. We help you compare both with realistic scenarios.