What is a conventional loan?

How does a conventional loan work?

Conventional loans are made by private lenders and usually sold to Fannie Mae or Freddie Mac. Because they follow those agencies' guidelines, they're called conforming loans. You can choose a fixed rate (15, 20 or 30 years) or an adjustable rate.

Your rate and mortgage insurance cost depend heavily on your credit score and down payment, so improving either before you apply can noticeably lower your payment.

Who qualifies for a conventional loan?

• Credit score: generally 620 minimum.
• Debt-to-income (DTI): up to 45%, and sometimes 50% with strong compensating factors.
• Down payment: 3% (HomeReady, Home Possible, 97% LTV programs) to 5%+.
• Steady, documented income — usually two years of history.
• Property: primary homes, second homes and investment properties are all allowed (with higher down payments for non-primary homes).

Conventional vs FHA: which is cheaper?

If your credit score is 700 or higher, a conventional loan is often cheaper over time because PMI falls off. With lower scores, FHA's flat pricing can win.

What does PMI cost?

Private mortgage insurance typically runs about 0.3% to 1.5% of the loan amount per year, depending on credit score and down payment. On a $300,000 loan that's roughly $75–$375 per month. You can request cancellation at 80% loan-to-value; it ends automatically at 78%.