Does a Conventional loan hit the mark for your goals?
Many homebuyers choose a Conventional loan because it often results in less expensive financing. This is mainly true because Conventional loans don’t typically require private mortgage insurance (PMI). These loans require no upfront PMI, and if you make a down payment of at least 20%, you’ll avoid monthly PMI as well. If you make a down payment of less than 20%, you can request that your PMI payments be canceled as soon as you’ve reached a loan-to-value (LTV) ratio of 80%.
Another benefit of a Conventional mortgage is it allows you to finance the purchase of a more expensive home. The conforming loan limit is the dollar cap on the size of a Conventional mortgage. The Federal Housing Finance Agency (FHFA) is raising conforming loan limits again. The 2021 maximum conforming loan limit will be $548,250. In areas with traditionally higher home prices, the limits are even higher. Buyers in the most expensive neighborhoods can get a conforming loan of up to $822,375.
In exchange for higher loan limits and no or shorter-term PMI, lenders have stricter standards when it comes to the borrower’s financial situation. Lenders generally require a minimum credit score of 620 to qualify for a Conventional loan. In addition, you must have a low debt-to-income ratio and assets in reserve. You may also have to make a larger down payment than with some other types of loans.
Conventional and FHA insured loans are the two most common types of mortgages in the country. Understanding the requirements for each can help you figure out which loan is right for you.
Conventional
Conventional loans conform to Fannie Mae/Freddie Mac guidelines and are a financial agreement between the lender and the borrower. Conventional loans are not government-backed so they may be harder to qualify for than FHA loans, but they typically have lower costs.
- May offer lower interest rates
- No private mortgage insurance (PMI) with 20% down payment. Shorter-term PMI with less than 20% down.
- More expensive home purchases possible
- Available as fixed-rate and adjustable-rate mortgages
- Require minimum credit score of 640
- Often require 20% down payment. Some gift funds allowed.
- May require less documentation and therefore take less time to process
FHA
An FHA loan is administered by the Federal Housing Administration (FHA) and is easier to qualify for than a Conventional loan. With the FHA guaranteeing the loan, lenders are more willing to approve applications, but FHA loans are usually more costly.
- Down payments as low as 3.5%
- Single-family homes, condos, multi-unit properties, and manufactured homes
- Mortgage insurance is required
- Entire down payment and closing costs can sometimes be covered with gift funds
- Extra funding available for renovations and repairs with FHA 203(k) program
- Typically accessible to people of all income levels
Frequently asked questions
Can you refinance with a Conventional loan?
What's the best way to get started?
How do you qualify for a loan?
What does it mean to be pre-qualified?
How do interest rates affect my mortgage?



30-Year Fixed-Rate Refinance Mortgage Example:
The payment on a $225,000 30-year fixed-rate cash out refinance loan at 3.250% with a 70% loan-to-value (LTV) is $979.21 with 2 points due at closing. The Annual Percentage Rate (APR) is 3.520%. This assumes a FICO score of at least 690. Payment does not include taxes and insurance premiums, which will result in a higher monthly payment. Interest rates and annual percentage rates (APRs) are based on current market rates and are subject to change without notice. Rates offered may be subject to pricing add-ons related to property type, loan amount, LTV, credit score, and other variables. Mortgage insurance may be required for LTV >80%. If mortgage insurance is required, the mortgage insurance may increase the APR and the monthly payment. Stated rate may change or not be available at the time of loan commitment or lock-in.
30-Year Fixed-Rate Purchase Mortgage Example:
The payment on a $225,000 30-year fixed-rate purchase loan at 3.125% with a 70% loan-to-value (LTV) is $963.84 with 2 points due at closing. The Annual Percentage Rate (APR) is 3.390%. This assumes a FICO score of at least 710. Payment does not include taxes and insurance premiums, which will result in a higher monthly payment. Interest rates and annual percentage rates (APRs) are based on current market rates and are subject to change without notice. Rates offered may be subject to pricing add-ons related to property type, loan amount, LTV, credit score, and other variables. Mortgage insurance may be required for LTV >80%. If mortgage insurance is required, the mortgage insurance may increase the APR and the monthly payment. Stated rate may change or not be available at the time of loan commitment or lock-in.