CONVENTIONAL LOANS

A conventional loan is a mortgage that is not insured or guaranteed by a government program such as FHA, VA, or USDA. Conventional mortgages can be conforming loans that meet applicable Fannie Mae or Freddie Mac standards, or non-conforming loans with different requirements. Because the category is broad, the exact credit, down payment, loan amount, property, and underwriting rules depend on the specific program and lender.

No. Twenty percent down is not a universal requirement for conventional financing. Some eligible conventional loan programs allow down payments as low as 3%. A smaller down payment can increase the loan-to-value ratio and may require private mortgage insurance, so the useful comparison is not simply how little you can put down, but how the down payment changes the payment, PMI, pricing, cash reserves, and total loan cost.

There is no single credit-score rule that describes every conventional mortgage. Many conforming conventional programs and lenders commonly use 620 as an important threshold, but eligibility and pricing depend on much more than the score alone. Debt-to-income ratio, down payment, reserves, loan purpose, property type, credit history, automated underwriting findings, and lender overlays can all affect the result.

Private mortgage insurance is commonly required on conventional mortgages when the borrower makes a down payment of less than 20%, although the exact requirement depends on the loan structure and lender. PMI protects the lender rather than the borrower. Its cost can vary based on factors such as credit profile, loan-to-value ratio, loan type, and mortgage-insurance provider.

For many conventional mortgages on a principal residence, federal law gives borrowers the right to request PMI cancellation when the principal balance is scheduled to reach 80% of the home’s original value, subject to requirements such as being current on the loan and meeting applicable servicing conditions. In general, PMI must automatically terminate when the balance is scheduled to reach 78% of the original value if the borrower is current. Fannie Mae, Freddie Mac, investors, and servicers may also have additional cancellation provisions.

Yes, many conventional programs allow properly documented gift funds from an acceptable donor to be used for some or all of the down payment and closing costs on an eligible primary residence or second home. The permitted amount, donor relationship, documentation, and any required borrower contribution depend on the program, property type, occupancy, and loan-to-value ratio. Gift funds are generally treated differently for investment properties.

No. Stronger credit can improve conventional mortgage pricing and may make the program more competitive, but conventional financing is not reserved only for borrowers with excellent credit. The full application matters. Income, debt, reserves, down payment, property, loan purpose, and automated underwriting results can all affect eligibility. In some cases FHA may price more favorably; in others conventional financing may be the stronger choice.

Neither program is automatically better. Conventional financing can be attractive when stronger credit, cancellable PMI, property flexibility, or the borrower’s long-term equity position improves the comparison. FHA can be attractive when its down payment or underwriting structure better fits the borrower. The useful comparison includes rate, mortgage insurance, upfront costs, monthly payment, cash to close, property requirements, and how long the borrower expects to keep the mortgage.