A conventional loan is a mortgage that is not insured or guaranteed by a federal government agency. Many conventional loans follow guidelines set by Fannie Mae or Freddie Mac and are called conforming loans; others, including jumbo loans, may have different limits or lender requirements. The right option and terms depend on the property, your finances, and the applicable loan guidelines.
Conventional financing may suit home buyers with a range of down payments, credit histories, and property plans. It is commonly used to purchase a primary residence, and some conventional programs may also allow financing for a second home or an investment property. Availability and requirements differ by loan program and occupancy type.
To qualify, lenders generally review your ability and willingness to repay. That review may include:
Some conventional options may allow down payments as low as 3% for eligible borrowers and properties. Other situations may call for a larger down payment. Minimum credit, income, reserve, and debt-to-income requirements vary, and a lender may apply additional requirements. Qualification and approval are subject to credit approval and applicable program guidelines.
Your total cash needed may include a down payment, closing costs, prepaid items, and any required reserves. Closing costs can include lender charges, appraisal and credit-report fees, title and settlement services, recording charges, and other items. Prepaids may include initial homeowners insurance premiums, property taxes, or interest. The amounts and which party pays particular costs depend on the transaction and applicable rules.
Private mortgage insurance (PMI) may be required when a conventional loan has a down payment below 20% of the home’s purchase price or appraised value, subject to program rules. PMI protects the lender, not the borrower. Its cost and duration depend on factors such as the loan, down payment, and borrower qualifications. For many loans with borrower-paid PMI, cancellation may be possible under federal law or the loan’s terms when specified conditions are met. Ask us how PMI may apply to your situation and what cancellation rules govern your loan.
Loan limits distinguish many conforming loans from jumbo loans. The Federal Housing Finance Agency sets conforming loan limits and updates them periodically. Limits can vary by property location and number of units. A loan above the applicable conforming limit may be considered jumbo and may have different qualification standards, pricing, or documentation requirements. We can help identify which limit applies to a property without assuming that every loan follows the same rules.
Down-payment funds may come from your own savings or, where permitted, an acceptable gift or other source. Lenders generally document where funds come from and may require evidence that they meet program requirements. Rules for seller contributions or other credits also vary by loan type, occupancy, down payment, and transaction details. Ask before relying on a particular source of funds or credit toward closing.
Conventional financing offers multiple loan structures and may be available for different property and occupancy types. Eligible buyers may be able to make a relatively small down payment, while a larger down payment may reduce the amount borrowed and could affect whether PMI is required. Conventional loans are not a single standardized offer: qualification, costs, and features depend on the specific program and lender.
Trade-offs may include PMI with a smaller down payment, significant upfront costs, and more demanding qualification or documentation in some circumstances. Jumbo loans may have different requirements from conforming loans. An adjustable-rate loan may have an interest rate that changes under the contract’s terms, which can affect future payments. Consider how the loan fits your budget and plans, including the possibility that taxes, insurance, or other housing costs may change.
Start by sharing your home-buying timeline, approximate budget, expected down payment, and any questions about credit or documentation. We can review your circumstances, explain conventional options that may be available, and outline the information needed for an application. If you are comparing loan structures, ask us to explain the differences in upfront costs, mortgage insurance, rate type, and other terms—not just the down payment.
Before making an offer or committing funds, discuss your financing plans with us and allow time for the application and property review. Any estimate or discussion is preliminary; loan terms and eligibility depend on verified information, credit approval, program guidelines, property review, and market conditions.