Flexible Financing for a Variety of Homeownership Goals
Conventional loans are mortgages that are not insured or guaranteed by a federal government agency. They are among the most widely used financing options for eligible home purchases and refinances.
Depending on the available program and borrower qualifications, conventional financing may offer a choice of down-payment options, fixed or adjustable interest rates, different loan terms, and financing for eligible primary residences, second homes, or investment properties.
Mortgage Pros Funding can help you compare available conventional loan options and understand how your credit profile, finances, property, and long-term goals may affect the financing available to you.
Conforming and Non-Conforming Conventional Loans
Conventional mortgages generally fall into two categories: conforming and non-conforming loans.
- Conforming loans meet applicable Fannie Mae or Freddie Mac requirements, including the conforming loan limit established for the property’s location and number of residential units.
- Non-conforming loans do not meet one or more conforming requirements. A jumbo mortgage is a common example when the requested loan amount exceeds the applicable conforming limit.
This page focuses primarily on conforming conventional financing. Borrowers who need financing above the applicable conforming limit can review the separate Jumbo Loans program.
Understanding Conforming Loan Limits
The Federal Housing Finance Agency establishes conforming loan limits each year for mortgages eligible for purchase by Fannie Mae and Freddie Mac. The applicable limit varies according to the calendar year, property location, and number of residential units.
Higher limits may apply in designated high-cost areas. If the requested mortgage amount exceeds the applicable limit, a jumbo or another non-conforming loan option may be required.
View Current FHFA Conforming Loan Limits
Down-Payment Options and Private Mortgage Insurance
A 20% down payment is not required for every conventional purchase loan. Certain programs may allow a smaller down payment for qualified borrowers and eligible properties, including options as low as 3% in some circumstances.
The required down payment depends on factors such as the selected program, occupancy, property type, credit profile, loan amount, and underwriting findings. Borrowers should also plan for applicable closing costs, prepaid expenses, and any required financial reserves.
When the down payment is less than 20%, private mortgage insurance may be required. PMI protects the lender—not the borrower—if the borrower stops making mortgage payments. Its cost can vary according to the down payment, credit profile, loan amount, property, and insurance arrangement.
Unlike FHA mortgage insurance, PMI on many conventional mortgages may be cancelled after applicable legal, loan, payment-history, and equity requirements are satisfied. The loan servicer can explain the requirements that apply to a specific mortgage.
Learn More About Private Mortgage Insurance
Fixed- and Adjustable-Rate Options
Conventional mortgages may be available with a fixed or adjustable interest-rate structure, depending on the lender and selected program.
- A fixed-rate mortgage maintains the same interest rate for the agreed loan term, while taxes, insurance, and other payment components may change.
- An adjustable-rate mortgage generally begins with an initial fixed period before the interest rate and payment may change according to the loan terms.
- Available terms, adjustment periods, rate caps, and qualification requirements vary by program.
Your loan professional can help you compare the initial payment, potential future payment changes, annual percentage rate, total costs, and time you expect to keep the mortgage.
Eligible Properties and Occupancy
Conventional financing can offer broader occupancy and property options than certain government-backed mortgage programs. Depending on the lender and program, eligible transactions may include:
- A one-unit primary residence
- An eligible condominium, townhouse, or planned-unit development
- An eligible two- to four-unit residential property
- An eligible second home
- An eligible one- to four-unit investment property
- Certain eligible manufactured homes
Down-payment, reserve, appraisal, pricing, and qualification requirements generally vary according to the property type and intended occupancy. Not every conventional program supports every property or transaction.
Credit, Income, Assets, and Debts
The lender evaluates the borrower’s overall ability to repay the mortgage. The review generally considers credit history, documentable income, employment, assets, existing debts, housing expenses, and the funds needed to complete the transaction.
There is no single credit score, debt-to-income ratio, or reserve requirement that applies to every conventional loan. The applicable standards depend on the program, lender, property, occupancy, loan-to-value ratio, and underwriting findings.
A stronger credit profile, larger down payment, or additional financial reserves may improve available terms, but each application is evaluated according to its complete circumstances.
Preparing Your Loan Documentation
The lender will request documents that support the information provided in the mortgage application. The exact requirements depend on the borrower’s employment, income sources, assets, credit history, and transaction.
Requested documentation may include:
- Recent income and employment records
- Federal tax returns or business records when applicable
- Bank, investment, retirement, and other asset statements
- Identification and residency documentation
- Information about current debts and housing expenses
- Documentation for gift funds or assistance programs when applicable
- Current mortgage, insurance, tax, and rental information for other real estate owned
- Additional documents needed to explain specific income, asset, credit, or legal circumstances
Your loan professional will provide a transaction-specific document checklist. Complete, accurate, and timely documentation helps the lender evaluate the application and avoid unnecessary delays.
Appraisal and Property Review
A professional appraisal is generally required to provide an opinion of the property’s market value and support the proposed financing. The lender may also review the property type, condition, title, insurance, project eligibility, and intended occupancy.
An appraisal is not the same as a comprehensive home inspection and does not guarantee that the property is free of defects. Homebuyers should consider hiring an independent qualified inspector to better understand the home’s condition.
Conventional Compared With Government-Backed Financing
Conventional, FHA, VA, and USDA mortgages differ in their eligibility rules, down-payment options, mortgage insurance or guarantee fees, loan limits, occupancy requirements, appraisal standards, and available property types.
A conventional loan may provide a competitive option for a borrower with a qualifying credit and financial profile, particularly when private mortgage insurance is not required or may later be cancelled. A government-backed loan may provide advantages for another borrower based on eligibility, available funds, property location, or other circumstances.
The best option depends on the complete transaction—not only the advertised interest rate. Compare the annual percentage rate, cash needed at closing, monthly payment, mortgage insurance or fees, available loan terms, and long-term cost.
What to Expect During the Process
The conventional loan process generally includes:
- Reviewing your home-purchase or refinancing goals
- Discussing available conventional financing options
- Completing the mortgage application
- Providing income, employment, asset, debt, and identity documentation
- Confirming the applicable conforming loan limit and program requirements
- Completing the appraisal and any additional property review
- Undergoing lender underwriting and satisfying approval conditions
- Reviewing the final loan terms and preparing for closing
Guidance From Application to Closing
Mortgage Pros Funding will help you understand conventional loan requirements, compare available financing structures, prepare the necessary documentation, and navigate each stage of the mortgage process.
Our team provides personalized guidance from the initial review of your financing goals through underwriting, final approval, and closing.