Conventional Home Loan Options

What is a Conventional Loan?

A conventional mortgage is a home loan that is not insured or guaranteed by a government agency such as FHA, VA, or USDA.

Many conventional loans are considered conforming loans because they meet the eligibility and loan-limit requirements used by Fannie Mae or Freddie Mac. Conventional loans above the applicable conforming limit are generally considered jumbo loans.

Conventional financing may be used to purchase or refinance a primary residence, second home, investment property, condo, or eligible one-to-four-unit property, depending on the loan program and borrower qualifications.

Conforming loan limits vary by year, property location, and number of units. Loans above the applicable limit may require jumbo financing.

Benefits of Conventional Home Loans

Flexible Property and Occupancy Options: Conventional financing may be available for primary residences, second homes, investment properties, condos, and eligible one-to-four-unit properties.

Low Down Payment Possibilities: Some conventional programs may allow low down payments for eligible primary-residence buyers.

Fixed and Adjustable Rates: Depending on the program, borrowers may be able to compare fixed-rate and adjustable-rate loan structures.

Mortgage Insurance Options: Loans with less than 20% down may require private mortgage insurance, with cost and structure varying by loan and borrower profile.

Purchase and Refinance Uses: Conventional loans may be used for home purchases, rate-and-term refinances, and eligible cash-out refinances.

Multiple Lender Guidelines: Credit, income, reserves, property, and underwriting requirements can vary between lenders.

What Can a Conventional Loan Finance?

Qualification requirements vary based on the lender, automated underwriting findings, loan purpose, occupancy, property type, and overall borrower profile.

• Primary Residence: Single-family homes
• Primary Residence: Eligible condos and townhomes
• Primary Residence: Two-to-four-unit properties
• Primary Residence: Certain manufactured homes
• Primary Residence: Planned unit developments
• Second Home: Eligible one-unit properties
• Second Home: Must meet occupancy and property-use requirements
• Second Home: Cannot be structured as a timeshare
• Second Home: Rental activity and management arrangements may affect eligibility
• Investment Property: Eligible one-to-four-unit properties
• Investment Property: Additional pricing or reserve requirements may apply
• Investment Property: Rental income may be considered when permitted
• Investment Property: Property and borrower requirements can differ from owner-occupied financing
• What May Be Reviewed for Conventional Financing: Credit history and score
• What May Be Reviewed: Income and employment
• What May Be Reviewed: Monthly debts
• What May Be Reviewed: Down payment
• What May Be Reviewed: Closing-cost funds
• What May Be Reviewed: Cash reserves
• What May Be Reviewed: Property type
• What May Be Reviewed: Intended occupancy
• What May Be Reviewed: Appraisal and property condition
• What May Be Reviewed: Existing real estate owned
• What May Be Reviewed: Rental income, when applicable
• What May Be Reviewed: Condo or project eligibility, when applicable

Down Payments and Private Mortgage Insurance

Conventional loans do not always require 20% down. Available down payment options depend on occupancy, property type, borrower qualifications, and the selected program.

When the loan-to-value ratio is above the applicable threshold, private mortgage insurance may be required. PMI pricing can depend on factors such as credit, down payment, occupancy, property type, and loan structure.

PMI Cancellation: Borrowers may generally request PMI cancellation when the principal balance reaches 80% of the home's original value, subject to applicable requirements. In general, automatic termination occurs when the scheduled balance reaches 78% of the original value and the loan is current. Different investor or servicer rules may allow earlier cancellation in some situations.

• Common PMI Structures: Monthly borrower-paid mortgage insurance
• Common PMI Structures: Single-premium mortgage insurance
• Common PMI Structures: Lender-paid mortgage insurance
• Common PMI Structures: Split-premium structures, when available

Conventional Loans for Home Purchases

Conventional financing may be appropriate for first-time buyers, repeat buyers, move-up buyers, second-home purchasers, and real estate investors. Depending on eligibility, available programs may include:

• Standard conforming loans
• Low-down-payment conventional programs
• Fannie Mae HomeReady
• Freddie Mac Home Possible
• High-Balance conventional loans
• Condo financing
• Two-to-four-unit financing
• Investment-property financing

Conventional Refinance Options

Rate-and-Term Refinance: May be used to adjust the interest rate, loan term, payment structure, or loan type without taking significant cash out.

Cash-Out Refinance: Replaces the current mortgage with a larger loan and provides eligible equity proceeds at closing.

FHA-to-Conventional Refinance: Some homeowners may consider refinancing from FHA into conventional financing to change the loan structure or potentially eliminate FHA mortgage insurance. Whether it makes sense depends on equity, credit, current terms, closing costs, and expected time in the home.

Conventional Versus Other Mortgage Options

Conventional: Flexible purchase and refinance financing without government mortgage insurance or guaranty.

FHA: Government-insured financing that may provide flexible qualification and low down payment options.

VA: Financing for eligible service members, veterans, and surviving spouses, potentially with no down payment.

USDA: Eligible buyers purchasing a primary residence in a qualifying rural or suburban area may have access to zero-down financing.

Jumbo: Financing for higher-priced properties when the loan amount exceeds the applicable conforming loan limit.

Non-QM: Alternative qualification options for self-employed borrowers, investors, nontraditional income, or scenarios that do not fit standard conforming guidelines.