Conventional Loans
The most popular loan type in America. Conventional loans offer competitive rates, flexible terms, and the ability to cancel PMI—making them ideal for borrowers with solid credit and stable income.
Program Details
Key Benefits
- Down payments as low as 3% for qualified first-time buyers
- Cancellable private mortgage insurance
- Competitive interest rates for good credit borrowers
- Multiple term options (15, 20, 30-year)
- Available for second homes and investment properties
Program Tags
Who It's Best For
- Buyers with good credit seeking the lowest total cost
- First-time buyers using 3% down programs (HomeReady/Home Possible)
- Move-up buyers with 20%+ down to avoid PMI
- Second home and investment property purchases
- Borrowers who want PMI removed once equity reaches 20%
Advantages
- PMI can be removed once you reach 20% equity
- Lower total costs than FHA for borrowers with 700+ credit
- Wide variety of terms: 10, 15, 20, 25, 30-year fixed and ARMs
- Available for primary, second homes, and investment properties
- Higher loan limits in high-cost areas
- No upfront mortgage insurance premium (unlike FHA)
Considerations
- •Stricter credit requirements than FHA (typically 620+ minimum)
- •PMI required if down payment under 20%
- •Higher down payment needed for investment properties (15-25%)
- •Less flexible debt-to-income ratios than FHA for some borrowers
Eligibility Requirements
- Primary residence, second home, or investment property
- Loan amounts up to county conforming limits
- U.S. citizens, permanent residents, and eligible non-permanent residents
- Minimum 2 years of consistent employment/income history
- Gift funds allowed with proper documentation
Additional Requirements
- Documented income via W-2s, tax returns, or pay stubs
- 2 years employment history (gaps must be explained)
- Asset documentation (bank statements, retirement accounts)
- Property appraisal meeting Fannie/Freddie guidelines
- Title insurance and homeowner's insurance
Pro Tips
- Put 20% down to eliminate PMI entirely and get the best rates
- If putting less than 20% down, compare PMI costs vs. FHA MIP—conventional PMI cancels, FHA MIP often doesn't
- Credit scores of 740+ unlock the best pricing; even small score improvements can save thousands
- Ask about Fannie Mae HomeReady or Freddie Mac Home Possible for 3% down with income limits
- Seller can contribute 3% toward closing costs (6% if 10%+ down, 9% if 25%+ down)
- Consider a 15-year term for lower rates and faster equity building if payments fit your budget
Also Known As
Most lenders require 620+, but you'll get significantly better rates and terms with 680+ credit. Scores of 740+ typically unlock the best available pricing. Each 20-point increase can meaningfully reduce your rate.
Yes! Fannie Mae's HomeReady and Freddie Mac's Home Possible programs allow 3% down for qualifying borrowers. These programs have income limits (typically 80% of area median income) and may require homebuyer education, but offer competitive rates and reduced PMI.
PMI automatically cancels when your loan balance reaches 78% of the original home value. You can request removal at 80% LTV if you have a good payment history. Alternatively, if your home has appreciated, you can request a new appraisal to prove you've reached 80% LTV sooner.
Conforming loans meet Fannie Mae and Freddie Mac guidelines, including loan limits ($766,550 in most areas for 2024). Non-conforming loans exceed these limits (jumbo loans) or don't meet other guidelines. Conforming loans typically offer better rates and easier qualification.
Yes, conventional loans allow gift funds from family members, domestic partners, or fiancé(e)s. You'll need a gift letter stating the funds don't need to be repaid, plus documentation of the transfer. Some programs may require a minimum borrower contribution.
Seller contributions (concessions) are limited based on your down payment: 3% maximum for down payments under 10%, 6% for 10-24% down, and 9% for 25%+ down. Investment properties are limited to 2% regardless of down payment.
The standard maximum DTI is 45%, but automated underwriting may approve up to 50% with strong compensating factors like high credit scores, significant reserves, or low LTV. Manual underwriting typically caps at 36-43% DTI.
Yes! Conventional loans allow investment properties with 15% down for single-family homes and 25% down for 2-4 unit properties. Expect higher interest rates (typically 0.5-0.75% more than primary residence) and stricter reserve requirements.
After Chapter 7 bankruptcy: 4 years. After Chapter 13 bankruptcy: 2 years from discharge or 4 years from dismissal. After foreclosure: 7 years. After short sale: 4 years. Some exceptions exist for extenuating circumstances.
15-year loans offer lower interest rates (typically 0.5-0.75% less) and build equity faster, but have higher monthly payments. 30-year loans have lower payments and more flexibility. Consider your budget, goals, and whether you'll stay in the home long-term.
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Typical Documents
- Last 30 days of pay stubs or income docs
- Last 2 years W-2s or 1099s (as applicable)
- Most recent 2 months of bank statements
- Government-issued ID
Exact items vary by program and scenario.
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Information provided is for educational purposes only and is not a commitment to lend. All loans subject to underwriting approval. Rates and terms subject to change. Equal Housing Lender. Equal Housing Opportunity.