A conventional loan is a mortgage that is not insured or guaranteed by a government agency such as FHA, VA or USDA. Conventional financing can offer flexible options for primary residences, second homes and investment properties, with down payments that may start as low as 3% for eligible borrowers. Lori Smolke, Mortgage Loan Officer with Fairway Home Mortgage, NMLS #916797, helps homebuyers compare conventional financing with other available mortgage options so they understand the payment, cash needed to close and longer-term costs.
A conventional mortgage is a home loan that is not insured or guaranteed by the federal government. Many conventional mortgages follow guidelines established by Fannie Mae or Freddie Mac, although conventional financing can include other loan structures as well.
Conventional does not mean “20% down.”
Fannie Mae specifically permits conventional financing for principal residences, second homes and investment properties, depending on the transaction and program.
A conventional loan may be worth exploring if you:
Conventional is not automatically “better” than FHA, VA or another loan type. The right choice depends on your credit profile, down payment, monthly payment, mortgage insurance, property and financial goals.
Some conventional loan programs allow eligible borrowers to purchase with as little as 3% down.
The minimum down payment depends on the mortgage program, occupancy, property type, borrower profile and other eligibility requirements. A larger down payment can reduce the amount borrowed and may also affect mortgage insurance and pricing.
On a $400,000 home purchase:
No. You do not always need 20% down to get a conventional mortgage.
Fannie Mae currently notes that many buyers mistakenly believe 20% down is required and that some conventional financing is available with as little as 3% down.
Putting 20% down may allow a borrower to avoid private mortgage insurance on many conventional loans. However, putting less than 20% down may still be a perfectly reasonable option depending on the buyer’s goals and available cash.
Private mortgage insurance, commonly called PMI, may be required on certain conventional mortgages when the borrower makes a lower down payment. PMI protects the lender—not the borrower—if the borrower defaults on the mortgage.
The cost of PMI can vary based on factors such as the loan amount, credit profile, loan-to-value ratio and mortgage structure.
Depending on the mortgage and applicable requirements, borrower-paid PMI may be eligible for cancellation after sufficient equity is established. Federal law provides cancellation and automatic-termination protections for many residential mortgages, but the exact timing and requirements depend on the loan and payment history.
If PMI is part of your loan, Lori can explain how the specific cancellation rules apply to the financing you’re considering.
Conventional mortgage qualification considers more than a credit score. Credit history, income, debts, assets, down payment, property and the overall loan profile all play a role. Different conventional programs and lenders may have different eligibility requirements.
A stronger credit profile may improve available mortgage pricing, but don’t assume you need perfect credit before talking with a lender.
Debt-to-income ratio, or DTI, compares certain monthly debt obligations with your gross monthly income. Lenders use DTI as one part of evaluating whether a mortgage payment fits within the borrower’s overall financial profile.
There is not one universal DTI percentage that guarantees conventional approval. The acceptable level depends on the full loan scenario and underwriting findings.
Conventional financing may be available for eligible:
Requirements can differ significantly depending on how you intend to use the property, so tell Lori up front if you’re buying a vacation home or investment property.
Yes.
First-time homebuyers are not limited to FHA financing. Conventional programs may offer low-down-payment options for qualifying buyers, including certain 3%-down programs.
What Is HomeReady®?
HomeReady® is a Fannie Mae conventional mortgage designed to provide additional flexibility for qualifying borrowers who meet applicable income and program requirements. It may offer down payments as low as 3% and flexible sources for down payment and closing costs.
Eligibility depends on the borrower’s circumstances, income limits and current program guidelines.
Gift funds may be allowed for certain conventional transactions when the donor, property type, occupancy and documentation meet program requirements. Eligible grants or approved assistance may also be available in some situations.
Before moving money between accounts or accepting a gift, talk with Lori so the funds can be documented correctly.
Certain conventional transactions may permit a non-occupant borrower or co-signer, subject to program, property and underwriting requirements.
If a parent or family member may help you qualify, talk with Lori before deciding how to structure the purchase.
Fixed-Rate Mortgage
The interest rate remains fixed for the life of the loan, providing consistency in principal-and-interest payments.
Adjustable-Rate Mortgage
An ARM generally begins with an initial fixed period and can later adjust according to the loan terms and applicable index.
The better choice depends on how long you expect to keep the home, your tolerance for future payment changes and the terms available when you borrow.
Certain conventional mortgages may allow temporary interest-rate buydowns in which funds are used to temporarily reduce the borrower’s effective payment during the early years of the mortgage. Eligibility and structure depend on the specific loan program and transaction.
Ask Lori to compare a temporary buydown with other uses of seller or builder funds so you can see which option provides the most value.
| Conventional | FHA | |
|---|---|---|
| Low down payment | May start at 3% for eligible programs | May start at 3.5% for eligible borrowers |
| Government insured | No | Yes |
| Mortgage insurance | May apply depending on structure/LTV | Generally required |
| PMI cancellation | May be possible under applicable rules | FHA mortgage insurance follows different rules |
| Second home | May be eligible | Generally no |
| Investment property | May be eligible | Generally no for standard FHA purchase |
| Credit flexibility | Depends on borrower/program | May offer more flexibility in some situations |
| Best choice | Depends on borrower | Depends on borrower |
The better loan is not simply the one with the smallest down payment or lowest advertised rate. Compare the monthly payment, mortgage insurance, cash needed to close, pricing and how long you expect to keep the mortgage.
Eligible Veterans and service members may want to compare conventional financing with a VA-backed loan. VA financing may provide no-down-payment potential and no monthly PMI, while conventional financing does not require military eligibility and may support second homes or investment properties.
A conforming loan is a conventional mortgage that meets applicable standards established by Fannie Mae, Freddie Mac and their regulator.
Not every conventional mortgage is necessarily conforming, so the terms conventional and conforming should not always be used interchangeably.
Discuss your goals, budget and expected purchase.
Review income, assets, credit and available financing.
Consider down payment, payment, PMI and loan structure.
Work with your real estate agent to make an informed offer.
Submit the items needed for underwriting.
The lender reviews the property and borrower qualifications.
Complete outstanding conditions and review closing figures.
Sign your loan documents and complete the purchase.
Do I need 20% down?
No. Certain conventional programs may allow eligible borrowers to put as little as 3% down.
Is conventional only for people with perfect credit?
No. Qualification depends on the complete borrower and loan profile.
Do conventional loans have mortgage insurance?
They may. PMI is commonly required when the loan structure involves a lower down payment.
Can PMI eventually go away?
Potentially, yes, when applicable cancellation or termination requirements are met.
Can first-time homebuyers get a conventional loan?
Yes. First-time buyers may qualify for conventional options, including certain low-down-payment programs.
Can I use a conventional loan for an investment property?
Potentially, yes, subject to applicable program and lender requirements.
Can I use conventional financing for a second home?
Potentially, yes.
Can gift funds be used?
Certain conventional programs permit qualifying gift funds subject to documentation and transaction requirements.
Is conventional better than FHA?
Not automatically. The better option depends on your individual situation.
Is a conventional loan the same as a conforming loan?
Not exactly. Conforming loans are a category of conventional mortgages that meet applicable Fannie Mae/Freddie Mac standards.
You probably don’t need 20% down.
Many buyers delay purchasing because they believe 20% is mandatory. It often isn’t.
PMI isn’t automatically a bad thing.
Sometimes putting less down and keeping more money available for savings, repairs or emergencies can make more sense than draining your accounts simply to avoid PMI.
Don’t choose a mortgage by rate alone.
The interest rate matters, but so do closing costs, mortgage insurance, cash needed at closing and how long you expect to keep the loan.
FHA isn’t always for “weaker” borrowers—and conventional isn’t always for “stronger” borrowers.
They’re simply different financing tools.
Tell your lender your plans.
A primary home, second home and investment property may have very different financing requirements.
Mortgage lending since 1993.
Clear Comparisons
Lori helps you understand conventional, FHA, VA and other available options rather than pushing one loan type.
Plain-English Guidance
You’ll understand the payment, down payment, mortgage insurance and cash needed before making a decision.
Realtor Communication
Lori stays in communication with you and your real estate agent throughout the mortgage process.
Multi-State Lending
Licensed to serve borrowers in:
Lori Smolke is a Mortgage Loan Officer with Fairway Home Mortgage, NMLS #916797, based in Queen Creek, Arizona. With mortgage lending experience dating back to 1993, Lori helps homebuyers, homeowners and real estate partners understand conventional, FHA, VA and other financing options in plain language.
You don’t need to choose a mortgage program before talking with a lender. Lori can review your situation, compare conventional financing with other available options and show you how the payment, down payment and mortgage insurance differ.
A conventional mortgage is a home loan that is not insured or guaranteed by the federal government. Many conventional mortgages follow guidelines established by Fannie Mae or Freddie Mac, although conventional financing can include other loan structures as well.
Conventional does not mean "20% down."
A conventional loan may be worth exploring if you:
Conventional is not automatically "better" than FHA, VA or another loan type. The right choice depends on your credit profile, down payment, monthly payment, mortgage insurance, property and financial goals.
Some conventional loan programs allow eligible borrowers to purchase with as little as 3% down.
The minimum down payment depends on the mortgage program, occupancy, property type, borrower profile and other eligibility requirements. A larger down payment can reduce the amount borrowed and may also affect mortgage insurance and pricing.
On a $400,000 home purchase:
These examples show down payment only and do not include closing costs, prepaid expenses or other transaction costs.
No. You do not always need 20% down to get a conventional mortgage.
Fannie Mae currently notes that many buyers mistakenly believe 20% down is required and that some conventional financing is available with as little as 3% down.
Putting 20% down may allow a borrower to avoid private mortgage insurance on many conventional loans. However, putting less than 20% down may still be a perfectly reasonable option depending on the buyer's goals and available cash.
Private mortgage insurance, commonly called PMI, may be required on certain conventional mortgages when the borrower makes a lower down payment. PMI protects the lender—not the borrower—if the borrower defaults on the mortgage.
The cost of PMI can vary based on factors such as the loan amount, credit profile, loan-to-value ratio and mortgage structure.
Depending on the mortgage and applicable requirements, borrower-paid PMI may be eligible for cancellation after sufficient equity is established. Federal law provides cancellation and automatic-termination protections for many residential mortgages, but the exact timing and requirements depend on the loan and payment history.
If PMI is part of your loan, Lori can explain how the specific cancellation rules apply to the financing you're considering.
Conventional mortgage qualification considers more than a credit score. Credit history, income, debts, assets, down payment, property and the overall loan profile all play a role. Different conventional programs and lenders may have different eligibility requirements.
A stronger credit profile may improve available mortgage pricing, but don't assume you need perfect credit before talking with a lender.
Debt-to-income ratio, or DTI, compares certain monthly debt obligations with your gross monthly income. Lenders use DTI as one part of evaluating whether a mortgage payment fits within the borrower's overall financial profile.
There is not one universal DTI percentage that guarantees conventional approval. The acceptable level depends on the full loan scenario and underwriting findings.
Conventional financing may be available for eligible:
Requirements can differ significantly depending on how you intend to use the property, so tell Lori up front if you're buying a vacation home or investment property.
Yes.
First-time homebuyers are not limited to FHA financing. Conventional programs may offer low-down-payment options for qualifying buyers, including certain 3%-down programs.
HomeReady® is a Fannie Mae conventional mortgage designed to provide additional flexibility for qualifying borrowers who meet applicable income and program requirements. It may offer down payments as low as 3% and flexible sources for down payment and closing costs.
Eligibility depends on the borrower's circumstances, income limits and current program guidelines.
Gift funds may be allowed for certain conventional transactions when the donor, property type, occupancy and documentation meet program requirements. Eligible grants or approved assistance may also be available in some situations.
Before moving money between accounts or accepting a gift, talk with Lori so the funds can be documented correctly.
Certain conventional transactions may permit a non-occupant borrower or co-signer, subject to program, property and underwriting requirements.
If a parent or family member may help you qualify, talk with Lori before deciding how to structure the purchase.
The interest rate remains fixed for the life of the loan, providing consistency in principal-and-interest payments.
An ARM generally begins with an initial fixed period and can later adjust according to the loan terms and applicable index.
The better choice depends on how long you expect to keep the home, your tolerance for future payment changes and the terms available when you borrow.
Certain conventional mortgages may allow temporary interest-rate buydowns in which funds are used to temporarily reduce the borrower's effective payment during the early years of the mortgage. Eligibility and structure depend on the specific loan program and transaction.
Ask Lori to compare a temporary buydown with other uses of seller or builder funds so you can see which option provides the most value.
| Conventional | FHA | |
|---|---|---|
| Low down payment | May start at 3% for eligible programs | May start at 3.5% for eligible borrowers |
| Government insured | No | Yes |
| Mortgage insurance | May apply depending on structure/LTV | Generally required |
| PMI cancellation | May be possible under applicable rules | FHA mortgage insurance follows different rules |
| Second home | May be eligible | Generally no |
| Investment property | May be eligible | Generally no for standard FHA purchase |
| Credit flexibility | Depends on borrower/program | May offer more flexibility in some situations |
| Best choice | Depends on borrower | Depends on borrower |
The better loan is not simply the one with the smallest down payment or lowest advertised rate. Compare the monthly payment, mortgage insurance, cash needed to close, pricing and how long you expect to keep the mortgage.
Eligible Veterans and service members may want to compare conventional financing with a VA-backed loan. VA financing may provide no-down-payment potential and no monthly PMI, while conventional financing does not require military eligibility and may support second homes or investment properties.
A conforming loan is a conventional mortgage that meets applicable standards established by Fannie Mae, Freddie Mac and their regulator.
Not every conventional mortgage is necessarily conforming, so the terms conventional and conforming should not always be used interchangeably.
Discuss your goals, budget and expected purchase.
Review income, assets, credit and available financing.
Consider down payment, payment, PMI and loan structure.
Work with your real estate agent to make an informed offer.
Submit the items needed for underwriting.
The lender reviews the property and borrower qualifications.
Complete outstanding conditions and review closing figures.
Sign your loan documents and complete the purchase.
No. Certain conventional programs may allow eligible borrowers to put as little as 3% down.
No. Qualification depends on the complete borrower and loan profile.
They may. PMI is commonly required when the loan structure involves a lower down payment.
Potentially, yes, when applicable cancellation or termination requirements are met.
Yes. First-time buyers may qualify for conventional options, including certain low-down-payment programs.
Potentially, yes, subject to applicable program and lender requirements.
Potentially, yes.
Certain conventional programs permit qualifying gift funds subject to documentation and transaction requirements.
Not automatically. The better option depends on your individual situation.
Not exactly. Conforming loans are a category of conventional mortgages that meet applicable Fannie Mae/Freddie Mac standards.
Many buyers delay purchasing because they believe 20% is mandatory. It often isn't.
Sometimes putting less down and keeping more money available for savings, repairs or emergencies can make more sense than draining your accounts simply to avoid PMI.
The interest rate matters, but so do closing costs, mortgage insurance, cash needed at closing and how long you expect to keep the loan.
They're simply different financing tools.
A primary home, second home and investment property may have very different financing requirements.
Lori helps you understand conventional, FHA, VA and other available options rather than pushing one loan type.
You'll understand the payment, down payment, mortgage insurance and cash needed before making a decision.
Lori stays in communication with you and your real estate agent throughout the mortgage process.
Licensed to serve borrowers in:
Lori Smolke is a Mortgage Loan Officer with Fairway Home Mortgage, NMLS #916797, based in Queen Creek, Arizona. With mortgage lending experience dating back to 1993, Lori helps homebuyers, homeowners and real estate partners understand conventional, FHA, VA and other financing options in plain language.
You don't need to choose a mortgage program before talking with a lender. Lori can review your situation, compare conventional financing with other available options and show you how the payment, down payment and mortgage insurance differ.