A conventional loan is a mortgage that is not insured or guaranteed by a federal government program such as FHA, VA or USDA. Conventional financing can be conforming when it meets applicable Fannie Mae or Freddie Mac requirements, or non-conforming when it falls outside those standards.
Qualification depends on factors such as credit, income, debt-to-income ratio, assets, property type, occupancy and loan purpose. Eligible conventional financing may be used for a primary residence, qualifying second home or investment property, and private mortgage insurance may apply depending on the loan-to-value ratio and mortgage structure.
A conventional mortgage may be worth considering when you have a reasonable amount of credit history, with more than a couple of creditors, and a FICO score above 700 typically. FHA, USDA, or VA government-backed loans are more flexible without the above conventional financing underwriting standards.
Fannie Mae’s current guidance identifies a 620 minimum representative credit score for applicable fixed-rate eligibility, while Desktop Underwriter evaluates the borrower’s complete risk profile. Manual underwriting and automated underwriting also use different DTI standards.
A conventional loan is a mortgage that is not insured or guaranteed by a federal government program such as FHA, VA or USDA. Conventional mortgages can be divided into two primary categories: conforming and non-conforming loans. The CFPB provides an independent explanation of conventional mortgages.
A conforming conventional loan follows applicable Fannie Mae or Freddie Mac underwriting and loan-limit requirements. These loans must remain within the conforming loan limit for the county and property type.
A non-conforming conventional loan does not meet one or more applicable Fannie Mae or Freddie Mac conforming requirements. This can include loans above the conforming loan limit, such as jumbo financing, or other conventional programs with underwriting terms outside the conforming framework.
Borrowers who need financing above the conforming limit should compare the available conventional high-balance and jumbo-loan options before selecting a program.
A conventional mortgage may be a strong option when:
The right program should be selected by comparing the projected interest rate, mortgage insurance, points, lender fees, closing costs, cash needed and long-term loan cost—not by looking at the down payment alone.
Conventional loans offer numerous advantages for qualified borrowers seeking the best mortgage option
Certain conventional programs allow eligible borrowers to purchase a one-unit primary residence with as little as 3% down. Program restrictions may apply based on first-time buyer status, income, property type, occupancy and underwriting findings for special loan features. Review Fannie Mae HomeReady program information for an authoritative program example.
Conventional mortgages do not charge the FHA upfront mortgage insurance premium. When conventional mortgage insurance is required, its structure and cost depend on the loan-to-value ratio, credit profile, loan program and selected mortgage-insurance option.
Borrowers with qualifying and utilzing conventional loans may generally request PMI cancellation when the scheduled principal balance reaches 80% of the home’s original value and applicable conditions are satisfied. PMI generally terminates automatically when the scheduled balance reaches 78%, provided the loan is current. See the CFPB’s official PMI cancellation guidance. Pro-tip: If your home has increased in value, you can use that value in a refinance to eliminate or lower your mortgage insurance.
Conventional financing may be used for eligible:
Down-payment, reserve, pricing and underwriting requirements generally become more restrictive for second homes, investment properties and multi-unit transactions.
Borrowers may be able to select a fixed-rate mortgage for predictable principal-and-interest payments or an adjustable-rate mortgage when the available structure better supports their expected ownership period and financial plan.
Conventional financing can support home purchases, rate-and-term refinances, limited cash-out refinances, cash-out refinances, debt consolidation refinances, and certain renovation or construction-related programs.
A 20% down payment is not required for most conventional purchases. Eligible borrowers may qualify with 3%, 5%, 10%, 15% or another applicable down-payment amount, depending on the program, occupancy, property type and underwriting.
A representative score of approximately 620 is commonly associated with conventional fixed-rate eligibility, but the final requirement depends on the underwriting method, number of borrowers, loan type and lender overlays. Higher credit scores may provide access to more favorable pricing and lower mortgage insurance cost, depending on the complete transaction.
Your debt-to-income ratio compares your qualifying monthly debts with your gross qualifying monthly income.
For manually underwritten Fannie Mae loans, the standard maximum is generally 36%. It may be increased to 45% when applicable credit and reserve requirements are met. Desktop Underwriter may permit a DTI of up to 50%. Review the current Fannie Mae debt-to-income guidance.
The required down payment depends on the loan program, property type, occupancy, number of units and underwriting findings. Funds may come from eligible personal assets and, for qualifying transactions, documented gifts, grants, employer assistance or approved subordinate financing which includes Down Payment Assistance programs.
Gift funds may generally be used for an eligible principal residence or second-home transaction, subject to donor, documentation and borrower-contribution requirements. Gifts are not permitted for a Fannie Mae investment-property transaction. See Fannie Mae’s personal gift-fund requirements.
Income must be stable, eligible and properly documented. The documentation needed depends on whether you receive salary, hourly income, commission, bonuses, overtime, self-employment income, retirement income, rental income or another qualifying income source.
The property must meet appraisal, condition, marketability, title, insurance and program requirements. Condominiums, multi-unit homes, manufactured homes and unique properties may require additional review.
Some transactions require the borrower to retain a specified amount of verified assets after closing. Reserve requirements can vary based on occupancy, property count, number of units, loan-to-value ratio and underwriting findings.
A 20% down payment is not required for most conventional purchases. Eligible borrowers may qualify with 3%, 5%, 10%, 15% or another applicable down-payment amount. And you could use Down Payment Assistance programs to meet the required minimum down payment amount.
When the first mortgage exceeds 80% of the applicable property value, private mortgage insurance is generally required unless another permitted mortgage-insurance structure is used.
Your mortgage-insurance cost may be affected by:
Compare the total payment and long-term cost of each down-payment option before deciding how much cash to use at closing.
Some grants, Community Seconds, housing-finance-agency programs and other approved assistance may be combined with eligible conventional mortgages. The conventional first mortgage and assistance program must both permit the structure.
Eligibility, assistance amount, repayment terms, borrower requirements, property requirements and available funding vary by program. Assistance should be reviewed together with the first mortgage, including the required cash to close, monthly payment and long-term cost.
Explore down payment assistance options.
For 2026, the baseline conforming loan limit for a one-unit property is $832,750. The one-unit ceiling in qualifying high-cost areas is $1,249,125. Higher limits apply to qualifying two- to four-unit properties, and special statutory limits apply in Alaska, Hawaii, Guam and the U.S. Virgin Islands. Verify the current figures through the official FHFA conforming-loan-limit resource.
The correct limit depends on:
When the requested mortgage exceeds the available conforming limit, compare high-balance conventional and jumbo-loan options.
Purchase an eligible primary residence, second home or investment property using a qualifying conventional mortgage.
Replace an existing mortgage to change the interest rate, loan term or loan structure, subject to qualification and net-benefit considerations. Use the refinance savings calculator to estimate a possible break-even period.
Access eligible home equity for purposes such as home improvements, debt consolidation, education expenses or other financial goals. Increasing secured mortgage debt can increase total interest cost and foreclosure risk, so the complete financial impact should be reviewed.
Certain conventional renovation programs allow eligible borrowers to finance a home purchase or refinance together with approved improvement costs. Compare available renovation and rehab loan options.
Ground-up construction generally requires a specialized construction or construction-to-permanent program rather than an ordinary conventional purchase mortgage. Separate builder, budget, appraisal, draw and property requirements apply.
Conventional loans may finance eligible second homes and rental properties. These transactions generally require larger down payments, additional reserves and different pricing than a primary-residence purchase. Review investment-property financing options when the property will generate rental income.
The conventional mortgage process generally includes eligibility review, application, documentation, pre-approval when applicable, property review, underwriting, final approval and closing.
Provide basic information about your purchase, refinance or investment-property goal so the appropriate conventional programs can be identified.
Submit the required borrower, income, asset, debt and property information. Authorization may also be requested to review your credit.
For a purchase, the lender reviews your credit, income, assets and debts to determine whether a pre-approval letter can be issued. A pre-approval is conditional and is not a commitment to lend. The CFPB explains what a mortgage pre-approval does and does not mean.
Shop within the reviewed price range, submit an offer and provide the executed purchase contract. Refinance borrowers proceed with the property and payoff review.
The loan team verifies the documentation, orders applicable third-party services and submits the file for underwriting.
Provide any updated or additional information requested by underwriting. Avoid opening new credit, moving large undocumented funds or changing employment without discussing it with your loan officer.
Review the final loan terms, cash-to-close amount and closing documents. After all funding and recording conditions are satisfied, the transaction can be completed.
| Feature | Conventional | FHA | VA | USDA |
|---|---|---|---|---|
| Government Program | No | FHA-insured | VA-guaranteed | USDA-guaranteed |
| Minimum Down Payment | As low as 3% for eligible programs | Commonly 3.5% for qualifying borrowers | VA may permit 0% for eligible borrowers | May permit 0% for eligible properties and borrowers |
| Credit Approach | Conventional underwriting; 620 is a common benchmark | More flexible program standards, subject to lender requirements | VA does not establish a universal minimum score; lenders may | Automated and manual credit-review requirements differ |
| Mortgage Insurance or Fee | PMI generally required above 80% LTV | Upfront and annual mortgage insurance | Funding fee may apply; no monthly PMI | Upfront and annual guarantee fees |
| Occupancy | Primary, qualifying second home or investment property | Primary residence | Primary residence | Eligible primary residence |
| Income Restrictions | None for standard conventional programs; affordable programs may have limits | No general program income limit | No general program income limit | Household-income limits apply |
| Geographic Restrictions | No general geographic restriction | No general geographic restriction | No general geographic restriction | Property must be in an eligible area |
VA states that it does not require a universal minimum credit score, although individual lenders may establish one. USDA guidance requires a fuller credit review when the score is below 640 or other specified conditions apply.
The lowest down payment does not automatically produce the lowest total cost. Compare interest, mortgage insurance, guarantee or funding fees, closing costs and long-term payment structure.
The next step is to compare the conventional programs available for your purchase, refinance, second-home or investment-property goal.
Your review can help determine:
Eligible programs may allow as little as 3% down. Many other conventional transactions use 5%, 10%, 15%, 20% or more depending on occupancy, property type, units, credit and underwriting.
A score around 620 is a common benchmark for applicable fixed-rate conventional eligibility, but the underwriting system and lender evaluate the complete application. Higher scores do not guarantee approval or a particular rate.
Possibly. Automated underwriting may allow a total DTI ratio of up to 50% in qualifying cases. Manual underwriting generally uses lower limits. Income stability, credit, reserves, down payment and the overall risk profile matter.
Putting at least 20% down commonly avoids borrower-paid PMI. With less than 20% down, mortgage insurance is generally required, but eligible borrowers may be able to cancel it later.
Eligible gift funds may be used for qualifying principal-residence and second-home transactions when donor and documentation requirements are satisfied. Rules vary by occupancy and transaction.
Some grants, Community Seconds, housing-finance-agency programs and other approved assistance may be combined with eligible conventional mortgages. The first mortgage and assistance program must both permit the structure.
Yes. Conventional options such as HomeReady, Home Possible and HomeOne may offer eligible borrowers low-down-payment financing. Some programs have income limits or first-time buyer requirements, while others do not.
Yes. Self-employed borrowers can qualify when their income is eligible, stable and properly documented. Tax returns, business returns, profit-and-loss statements, balance sheets or other documentation may be required.
Yes, when the borrower and property qualify. Refinancing may allow an eligible homeowner to change the loan structure or eliminate FHA mortgage insurance, but FHA annual MIP is not automatically permanent in every case. Its duration depends in part on the original LTV and loan term.
The timeline depends on the completeness of the application, appraisal, title work, property type, underwriting conditions and transaction complexity. Avoid promising a universal 30- or 45-day closing period. The minimum or quickest time allowed by government guidelines is 10-days. I have closed loans in 10 days when needed and generally close within 14-21 days. Closing quicker could help your offer beat a competing offer to purchase or even get a price reduction versus another offer.
No. A pre-approval is a conditional statement based on the reviewed information and assumptions. Final approval requires acceptable property, documentation, underwriting and closing conditions.
Loan Officer / Branch Manager
NMLS #1396861 · DRE #00853403
E Mortgage Capital, Inc. · NMLS #1416824
All loans are subject to credit, income, asset, property and underwriting approval. Program guidelines, loan limits, rates, costs and availability may change. This information is educational and is not a commitment to lend. Equal Housing Opportunity.
Last reviewed: July 25, 2026
