I’m Scott Swinford, a mortgage loan originator (NMLS# 138422) licensed in Indiana, Illinois, and Michigan. I have been a loan officer for more than 20 years. Here is how conventional loans work and how to tell whether one fits you better than an FHA, VA, or USDA loan.
What Is a Conventional Loan?
A conventional loan is any mortgage that is not insured or guaranteed by a government agency. Most follow guidelines set by Fannie Mae and Freddie Mac, which buy these loans from lenders. A loan that meets their size limits and guidelines is called a conforming loan.
Conventional loans can finance:
- A primary residence
- A second home
- An investment property
Who Qualifies?
- Credit score. The minimum credit score for the conventional loans I offer is 620. A higher score can lower your rate and your mortgage insurance cost. Learn why your mortgage credit score can differ from the one you see online.
- Steady income. Lenders look for income you can document and expect to continue.
- Debt-to-income ratio. Your monthly debts, plus the new mortgage payment, must fit within program limits.
- Down payment and reserves. You need funds for the down payment and closing costs. Gifts from family can often help.
How Much Do You Need to Put Down?
- First-time buyers: as little as 3% down.
- Buyers who meet income limits: as little as 3% down through programs such as Fannie Mae HomeReady and Freddie Mac Home Possible.
- Other buyers of a primary residence: usually at least 5% down.
- Second homes and investment properties: larger down payments are required.
Putting down 20% or more means no private mortgage insurance.
Private Mortgage Insurance (PMI)
With less than 20% down, a conventional loan carries private mortgage insurance. Unlike FHA mortgage insurance, PMI does not have to last for the life of the loan.
- You can request cancellation once your balance reaches 80% of the home’s original value, if your payment history is good.
- It ends automatically when your balance reaches 78% of the original value.
Your credit score and down payment affect what PMI costs, so a stronger score can save you money every month.
Fixed Rate or Adjustable Rate?
- Fixed rate: your interest rate and principal-and-interest payment stay the same for the life of the loan. A good fit if you plan to stay in the home for years.
- Adjustable rate (ARM): the rate is fixed for an initial period, then adjusts on a set schedule. It can fit buyers who expect to move or refinance before the first adjustment, but your payment can rise after that.
I walk you through both and show you how each would work for your plans before you choose.
Conventional vs. FHA, VA, and USDA
| Feature | Conventional | FHA | VA | USDA |
|---|---|---|---|---|
| Who can use it | Any qualified buyer | Any qualified buyer | Eligible Veterans, service members, and surviving spouses | Buyers within income limits in eligible areas |
| Mortgage insurance | PMI with less than 20% down can be removed | Upfront and monthly premiums | None monthly; a funding fee may apply | Upfront and annual guarantee fees |
| Second homes and rentals | Yes | No | No | No |
| Learn more | This page | FHA loans | VA loans | USDA loans |
If you are an eligible Veteran, compare a VA loan before you choose conventional. If your credit or down payment is limited, FHA may be the better fit. I run the numbers on each option you qualify for.
Seller Credits
Seller contribution rules vary by loan program. On a conventional loan, the limit depends on your down payment and how you will use the home. I check the limit for your loan before you negotiate, so you can ask for a credit amount you can use.
Frequently Asked Questions
What credit score do I need for a conventional loan?
The minimum credit score for the conventional loans I offer is 620. A higher score can lower your rate and your mortgage insurance cost, so it is worth checking where you stand before you apply.
How much do I need to put down on a conventional loan?
First-time buyers and buyers who meet income limits can put down as little as 3%. Other buyers of a primary residence usually need at least 5%. Second homes and investment properties need larger down payments.
Can I remove PMI on a conventional loan?
Yes. You can ask to cancel it once your balance reaches 80% of the home’s original value, if your payment history is good. It ends automatically when your balance reaches 78% of the original value.
Can I use a conventional loan for a second home or rental property?
Yes. Conventional loans can finance a primary residence, a second home, or an investment property. Second homes and investment properties need larger down payments and stronger qualifications.
See Whether a Conventional Loan Fits You
Call 219-695-0369 or text me at 219-758-8072. You can also send me a message, get pre-qualified online, or schedule a consultation.
This is not a commitment to lend. Approval depends on credit, income, assets, property, and program guidelines, which can change. Not all programs are available in all areas.
