Purchase Loans
Conventional loans are the most common mortgage in the United States — roughly two-thirds of home purchases are financed with one each year. Unlike FHA, VA, or USDA loans, conventional mortgages aren’t insured or guaranteed by a government agency. Instead they follow guidelines set by Fannie Mae and Freddie Mac (the “conforming” guidelines) and are funded by private lenders. That structure gives conventional loans three advantages borrowers with strong credit care about: down payments as low as 3%, the ability to cancel mortgage insurance once you hit 20% equity, and the widest selection of property types — primary homes, second homes, and investment properties all qualify. For a first-time buyer with a 720 credit score and stable income, conventional is almost always cheaper than FHA over the life of the loan, even though FHA allows a lower credit-score entry point.
Conventional loans are available in fixed-rate and adjustable-rate options with terms typically ranging from 10 to 30 years.
Private mortgage insurance (PMI) is required when your down payment is less than 20%, but it can be removed once you build sufficient equity.
Loan limits are set annually by the Federal Housing Finance Agency — amounts above those limits fall into jumbo territory (typically $766,550 in most counties, higher in designated high-cost areas).
Fannie Mae and Freddie Mac — the government-sponsored enterprises that buy conforming loans — set the underwriting guidelines most lenders follow. Automated underwriting (DU for Fannie, LP for Freddie) drives approval decisions.
Gift funds are allowed for down payment and closing costs. With 20%+ down, 100% of funds can be gifted; below 20%, at least 5% generally must be your own unless you use HomeReady or Home Possible.
No prepayment penalties. You can pay extra, recast, or pay off early without fees — standard on all Fannie/Freddie conforming loans.
A 3% down payment unlocks entry without the permanent mortgage insurance FHA carries. Conventional PMI costs less for strong credit and drops off automatically once you reach 20% equity.
Put the equity from your sale into the next home and avoid PMI entirely. With 20% down and solid credit, conventional typically beats FHA and VA on rate and lifetime cost.
Conventional is the only program that routinely finances non-primary residences. Expect slightly higher down payment (10% second home, 15–25% investment) and a modest rate premium.
Conventional underwriting accepts standard income documentation without the extra overlays government programs add on top. DU/LP automated approvals are common for self-employed borrowers with consistent net income.
Refinancing into a conventional loan drops the permanent FHA MIP or VA funding fee, often with no PMI at all. This is the most common reason borrowers leave FHA.
Loan amount $380,000. Monthly principal and interest is about $2,401 at a 6.5% rate, with PMI around $95/month. Total PITI lands near $3,100 after taxes and insurance. PMI cancels automatically when the loan balance reaches about $320,000 (roughly 78% LTV).
Loan amount $320,000. Monthly principal and interest is about $2,022 with no PMI. Total PITI around $2,600 — roughly $500/month less than the 5%-down scenario, because you avoid PMI entirely and finance a smaller balance.
Loan amount $262,500 with a typical 0.75% rate premium for non-owner-occupied. Monthly principal and interest is about $1,746 at 7.25%. Rental cash flow should cover this comfortably — verify the math with the DSCR calculator before making an offer.
Example figures use illustrative rates and are for educational purposes only. Actual rates, terms, and costs depend on credit profile, market conditions, and property specifics.
FHA allows 580 credit and 3.5% down, but its mortgage insurance is permanent (can't be cancelled except by refinancing) and includes an upfront 1.75% MIP. Above a 700 credit score, conventional almost always costs less over five or more years.
VA beats conventional on upfront cost — zero down, no mortgage insurance — but carries a funding fee of 1.4–3.6%. For repeat VA users or buyers who already have 20% down, conventional can pencil cheaper over the life of the loan.
USDA offers zero-down financing, but only in rural-designated areas and only for borrowers under program income caps. Conventional works anywhere, for any income level.
If the loan amount exceeds the local conforming limit (typically $766,550, or higher in coastal markets), you're automatically in jumbo territory. Jumbo loans carry tighter credit and reserve requirements and usually a slightly higher rate.
Explore the programs conventional mortgages — 3% down, cancellable pmi are most often compared against, plus the Purchase Loans hub for the full lineup and today's mortgage rates for current pricing context.
Most lenders look for a minimum credit score of 620, though a higher score can help you qualify for better rates and terms. Your overall financial profile — including income, debt, and assets — is also a factor.
Qualified buyers can put as little as 3% down on a primary residence. A larger down payment reduces or eliminates the need for private mortgage insurance and lowers your monthly payment.
Private mortgage insurance (PMI) protects the lender if you default and is required when your down payment is less than 20%. You can request removal once your loan balance reaches 80% of the home’s original value, and it’s automatically cancelled at 78%.
Yes. Conventional loans can be used for primary residences, second homes, and investment properties. Down payment and credit requirements are typically higher for non-primary residences.
All conforming loans are conventional, but not all conventional loans are conforming. “Conforming” means the loan fits within Fannie Mae and Freddie Mac’s loan limits and guidelines. Jumbo loans are technically conventional — they’re not government-backed — but they exceed the conforming limits and carry tighter underwriting.
Typically 21–35 days from application to closing, which is faster than FHA or VA in most cases. A clean file with responsive documentation can close in 15–20 days. Appraisal turn time is usually the longest single step.
Yes. On a primary residence with 20% or more down, 100% of the down payment and closing costs can come from gift funds. Below 20% down, at least 5% typically needs to be your own funds unless you’re using a low-down-payment program like HomeReady or Home Possible, which allow fully-gifted down payments at specific income limits.
No. All Fannie Mae and Freddie Mac conforming loans are prepayment-penalty-free. You can pay extra principal, recast after a lump-sum payment, or pay the loan off in full at any time without penalty.
Automated underwriting (DU or LP) approves debt-to-income ratios up to 50% for strong borrowers. Manual underwrites cap at 45%. For the best pricing, lenders target DTI under 43% — the “qualified mortgage” threshold.
Yes — this is the number-one reason people refinance off FHA. Once you have 20% equity and a 620+ credit score, a conventional refinance eliminates the permanent FHA MIP. If current rates are higher than your FHA rate, run the break-even math before refinancing — sometimes keeping your FHA loan and doing a principal recast is cheaper.
Before you lock in a price range, use the affordability calculator to see what you qualify for based on income, debts, and down payment. Then estimate your monthly payment with the mortgage calculator to model principal, interest, taxes, insurance, and PMI on a conventional loan. If your seller is offering concessions, compare buydown scenarios in the buydown calculator to see whether a 2-1 or permanent buydown beats a straight rate reduction. Curious how extra principal accelerates payoff? model payoff timing in the repayment calculator to see interest savings over the life of the loan. Still deciding whether now is the right time? compare total cost of ownership with the rent vs. buy calculator.