A conventional loan is the most standard and widely available type of mortgage that doesn’t come with government backing or special eligibility requirements.
If you’re looking to buy your dream home, but you don’t have enough funds, you aren’t alone. One of the biggest hurdles that most home buyers face is saving up for a sizable down payment, let alone the whole payment on a home. Luckily, there are various loan options you may be able to utilize to kickstart and propel you towards getting the home you so much desire.
However, not every loan option is right for you, especially if you are financially strained with debts or a low credit score. That’s when it may be a good idea to consider a FHA loans, especially if you’re a first-time homebuyer.
Why Choose a Conventional Loan?
Low Down Payment Options First-time homebuyers can purchase with as little as 3% down. Repeat buyers typically need 5-10% down.
No Upfront Mortgage Insurance Premium Unlike FHA loans, conventional loans don't charge an upfront insurance fee—saving you thousands at closing.
PMI Can Be Removed Once you reach 20% equity, Private Mortgage Insurance (PMI) automatically drops off—unlike FHA loans where it stays for the life of the loan.
Higher Loan Limits Borrow more than with FHA or USDA loans—up to $766,550 in most California counties (or higher for jumbo loans).
Flexible Property Types Finance single-family homes, condos, townhomes, multi-unit properties (up to 4 units), second homes, and investment properties.
Faster Closing No government approval required—conventional loans typically close faster than FHA, VA, or USDA loans.
No Property Restrictions Unlike USDA (location limits) or VA (property standards), conventional loans have minimal property restrictions.
Who Should Consider a Conventional Loan?
Conventional loans are ideal if:
✓ You have good to excellent credit (680+)
✓ You can afford 3-20% down payment
✓ You have stable employment and income
✓ Your debt-to-income ratio is below 43%
✓ You want PMI to drop off at 20% equity
✓ You're buying a higher-priced home
✓ You're buying a second home or investment property
You might choose another loan if:
✗ Your credit score is below 620
✗ You qualify for VA (0% down) or USDA (0% down)
✗ You prefer lower down payment (3.5% FHA)
✗ Your debt-to-income ratio exceeds 45%
Conventional Loan Requirements
Credit Score:
740+: Best rates and terms
700-739: Excellent rates
680-699: Good rates
660-679: Fair rates
620-659: Higher rates, may need larger down payment
Down Payment:
3%: First-time homebuyers (HomeReady, Home Possible programs)
5%: Repeat buyers on primary residence
10%: Better rates, lower PMI
15%: Investment properties (minimum)
20%: No PMI required
Debt-to-Income Ratio:
Front-end (housing costs): Up to 28%
Back-end (all debt): Up to 43% (45% possible with compensating factors)
Employment & Income:
2 years of stable employment (same field)
Consistent, verifiable income
Self-employed: 2 years of tax returns
Assets:
Down payment funds (must be sourced and documented)
2-6 months of reserves recommended (depending on property type)
Gift funds allowed from family members
Property Requirements:
Must meet standard appraisal guidelines
Must be in good condition
No major health/safety issues
Private Mortgage Insurance (PMI)
If you put down less than 20%, you'll pay PMI. Here's what you need to know:
PMI Cost: Typically 0.50% to 1.50% of the original loan amount annually, depending on:
Credit score
Down payment amount
Loan type
Example:
Loan amount: $350,000
PMI rate: 0.85% annually
Annual PMI: $2,975
Monthly PMI: $248
Good News: PMI automatically cancels when you reach 78% loan-to-value (22% equity). You can request removal at 80% LTV (20% equity).
Comparison to FHA: FHA mortgage insurance is 0.55-0.85% annually PLUS 1.75% upfront, and it never drops off (unless you put 10%+ down and wait 11 years).
Types of Conventional Loans
Fixed-Rate Mortgages
30-year fixed: Most popular, lowest payment, highest total interest
20-year fixed: Higher payment, significant interest savings
15-year fixed: Highest payment, lowest rates, maximum interest savings
10-year fixed: Rapid equity building, very high payments
Adjustable-Rate Mortgages (ARMs)
5/1 ARM: Fixed for 5 years, then adjusts annually
7/1 ARM: Fixed for 7 years, then adjusts annually
10/1 ARM: Fixed for 10 years, then adjusts annually
Lower initial rates than fixed, good if you'll sell/refinance within initial period
Special Programs:
HomeReady (Fannie Mae): 3% down for first-time buyers, income limits apply
Home Possible (Freddie Mac): 3% down for first-time buyers, income limits apply
Conventional 97: 3% down for first-time buyers, no income limits
How Much House Can You Afford?
Quick Formula: Your monthly housing payment (principal, interest, taxes, insurance, HOA) should not exceed 28-31% of your gross monthly income.
Example:
Household income: $90,000/year
Monthly gross income: $7,500
Maximum housing payment: $2,100-$2,325
Estimated home price: $380,000-$420,000 (depending on down payment, rates, taxes)
Use our calculator to get your personalized estimate!
Why Choose Marcus for Your Conventional Loan?
Rate Shopping: I work with multiple lenders to find you the best rate and terms for your situation.
Credit Optimization: If your score is 660-690, I can advise on quick strategies to boost it 20-40 points for better rates.
Fast Pre-Approval: Get pre-approved in 24-48 hours with a competitive letter that gets taken seriously.
Experience: I've helped clients secure conventional loans from $200,000 to $700,000+.
Clear Guidance: I'll explain whether conventional is your best option or if FHA, VA, or USDA might save you money.
Smooth Process: My average closing time is 21 days—faster than the industry average of 30-45 days.
Ready to Explore Conventional Financing?
Whether you're a first-time buyer or moving up to your dream home, let's discuss if a conventional loan is right for you.