What Is a Conventional Loan?
A conventional loan is a home mortgage that is not insured or guaranteed by a federal agency such as the FHA or the VA. Most conventional loans are “conforming,” which means they meet Fannie Mae and Freddie Mac guidelines and fall within loan limits set each year by the Federal Housing Finance Agency. Loans above those limits are called jumbo loans.
Quick Facts
| Question | Answer |
|---|---|
| What is it? | A mortgage not insured or guaranteed by the government |
| Minimum down payment | As little as 3% on primary homes for qualifying borrowers |
| Typical credit score | Commonly 620 or higher |
| Mortgage insurance | Private mortgage insurance (PMI) if you put down less than 20% |
| Property types | Primary homes, second homes, investment properties, condos, co-ops |
| Terms | Commonly 15 and 30 years, fixed or adjustable |
| Programs we offer | Fannie Mae, Freddie Mac, HomeReady, Home Possible, jumbo, renovation, delayed financing |
What Types of Conventional Loans Do We Offer?
We offer conforming, low-down-payment, jumbo, renovation, investment and other conventional programs. Which one fits depends on your down payment, credit and property.
| Program | What it does | Best for |
|---|---|---|
| Fannie Mae loans | Conforming loans with as little as 3% down | Buyers with solid credit and a small down payment |
| Freddie Mac loans | Conforming loans with 3% to 5% down | Buyers comparing alternatives to Fannie Mae |
| HomeReady | Up to 3% down with flexible income rules | Low- to moderate-income buyers |
| Home Possible | Up to 3% down | Low- to moderate-income buyers |
| High-balance | Conforming loans above the standard limit in high-cost counties | Buyers in higher-priced areas |
| Jumbo | Loans above conforming limits, up to 85% LTV | Higher-priced homes |
| Homestyle Renovation | Finances purchase or refinance plus repairs in one loan | Buyers of homes that need work |
| Delayed financing | Lets cash buyers recover cash with a mortgage after purchase | Buyers who paid cash |
| Investment | Loans for rental properties | Landlords and investors |
| Non-warrantable condo | Loans for condos that don’t meet standard guidelines | Condo buyers |
| Co-op purchase and refinance | Loans secured by co-op shares | NY and NJ co-op buyers |
How Much Down Payment Do You Need for a Conventional Loan?
You can put down as little as 3% on a primary home with programs such as Fannie Mae, Freddie Mac, HomeReady and Home Possible, if you qualify. Second homes commonly need 10% down, and investment properties typically need 15% to 25%. Jumbo loans go up to 85% LTV, which means about 15% down.
| Property | Typical minimum down payment |
|---|---|
| Primary home | As little as 3% |
| Second home | Commonly 10% |
| Investment property | Commonly 15% to 25% |
| Jumbo (primary home) | About 15% (up to 85% LTV) |
Putting 20% down avoids private mortgage insurance. Exact requirements depend on your credit, the program and the property, so we confirm them for your situation.
What Credit Score Do You Need for a Conventional Loan?
What Is Private Mortgage Insurance and How Do You Remove It?
Private mortgage insurance (PMI) protects the lender if you put down less than 20% on a conventional loan. You pay it monthly, and unlike FHA mortgage insurance, it can be removed. You can request removal when your loan balance reaches 80% of the home’s original value, and your lender must automatically end it when you reach 78%, if you are current on payments.
Your PMI cost depends on your credit score, down payment and loan size. We show you the monthly cost of each option up front so you can compare.
How Do Conventional, FHA and VA Loans Compare?
Conventional loans reward strong credit and savings, FHA is more flexible on credit and down payment, and VA offers eligible veterans no down payment. This table summarizes the differences.
| Feature | Conventional | FHA | VA |
|---|---|---|---|
| Down payment | As little as 3% | 3.5% with a 580 score | Often 0% |
| Credit | Commonly 620 or higher | Flexible | Lender-set |
| Mortgage insurance | PMI under 20% down; removable | Upfront and annual; may last the loan | None; funding fee applies |
| Property use | Primary, second home, investment | Primary residence | Primary residence |
| Best for | Strong credit, larger down payment | Smaller down payment, lower credit | Eligible veterans and service members |
What Are the Conventional Loan Requirements?
Conventional loans have rules about your credit, income, debts and the property.
- Credit: commonly 620 or higher, with better pricing at higher scores.
- Income and debt: steady, documented income and a debt-to-income ratio that programs commonly cap in the mid-40s, with some approvals allowed higher when other factors are strong.
- Down payment and reserves: your down payment, plus cash reserves required for some properties and loan sizes.
- Property: an appraisal that supports the value, and a property that meets guidelines, including condos and co-ops that meet building requirements.
- Loan limits: conforming limits are set each year by county. Loans above the limit are jumbo. Ask us which applies to your county.
What Is a Jumbo Loan?
A jumbo loan is a mortgage above the conforming loan limit for your county. Jumbo loans typically have stricter requirements than conforming loans, including larger down payments, higher credit scores and more cash reserves. Our jumbo loans go up to 85% LTV.
High-cost areas in New Jersey and New York have higher limits, so a home that needs a jumbo loan in one county may qualify as a conforming or high-balance loan in another. We check your county’s limit before you choose a program.
Can You Buy a Second Home or Investment Property With a Conventional Loan?
Yes. Conventional loans are among the most common ways to buy second homes and rentals. Second homes commonly need 10% down, and investment properties typically need 15% to 25%, plus higher credit scores and cash reserves than a primary home.
If you’re buying purely as an investment, our investor DSCR program qualifies you using the property’s rental income instead of only your personal income.
Can You Use a Conventional Loan for a Condo or Co-op?
Yes. We offer conventional loans for condos, non-warrantable condos and co-ops. The lender reviews the building as well as you, including its reserves, owner-occupancy rate, special assessments and litigation. A building that doesn’t meet standard guidelines is “non-warrantable,” and we offer loans for those.
Co-ops are secured by shares in a corporation rather than a deed, and the board usually must approve you. See our pages for a mortgage broker in New York and Florida for local details.
Can a Conventional Loan Cover Renovations?
Yes. The Homestyle Renovation program finances your purchase or refinance and the cost of repairs in one loan. It suits buyers of homes that need work, or owners who want to update their home without a second loan.
What Is Delayed Financing?
Delayed financing lets a buyer who paid cash for a home take out a mortgage shortly after purchase and recover some of the cash, without the limits of a standard cash-out refinance. It is commonly used by investors and by buyers who needed to pay cash to win an offer. Timing and limits apply, so ask us whether it fits your purchase.
How Do You Apply for a Conventional Loan?
You apply by getting pre-approved, finding a home, choosing your program, and moving through appraisal, underwriting and closing. Most purchases close in roughly 30 to 60 days after the contract is signed.
- Get pre-approved: we review your documents and match you to programs. See our mortgage pre approval page.
- Find a home and sign a contract: make offers with your pre-approval in hand.
- Choose your loan and lock your rate: we compare options and lock when you’re ready.
- Appraisal and underwriting: the lender values the home and verifies your file.
- Closing: you sign and receive the keys.
Already own a home? See how to refinance your mortgage.
What Documents Do You Need for a Conventional Loan?
- Government-issued photo ID and Social Security number
- Pay stubs, W-2s and two years of tax returns
- Recent bank and asset statements
- The signed purchase contract
- If self-employed: business returns and a profit-and-loss statement, or 12 to 24 months of bank statements for alternative documentation loans.
Who Is American Capital Mortgage Inc.?
American Capital Mortgage Inc. is a mortgage broker and banker headquartered in Orange, New Jersey, licensed as a mortgage broker in Florida and several other states. Sunny Jain, our founder and CEO, has been in the mortgage business since 1996, with prior experience at Bank America Mortgage and Bank of NY. You can verify licensing for our loan officers at NMLS Consumer Access.
- Sunny Jain, CEO (NMLS ID 13710): residential and commercial originations, 30+ years of experience
- Rajiv Jain, Vice President (NMLS ID 16291): 20+ years in the mortgage business
- Joe St. Rose, Loan Officer (NMLS ID 1473569): multifamily and commercial mortgage origination
FAQs:
As little as 3% on a primary home with programs such as Fannie Mae, Freddie Mac, HomeReady and Home Possible, if you qualify. Second homes and investment properties typically require more.
No. You can put down as little as 3% on a primary home, though with less than 20% down you will pay private mortgage insurance.
Yes. You can request removal when your balance reaches 80% of the home’s original value, and your lender must end it automatically at 78%, if you are current on payments.
Conventional loans commonly look for 620 or higher, and the best pricing often goes to scores of 740 or more. If your score is lower, an FHA loan may be an alternative.
A conforming loan is within the county’s loan limit and follows Fannie Mae or Freddie Mac guidelines. A jumbo loan is above the limit and usually has stricter requirements, including a larger down payment.
Yes. Investment properties typically need 15% to 25% down and a higher credit score. Our investor DSCR program can also qualify you using the property’s rental income.
Yes. You can qualify with tax returns, or through our non-QM programs that use 12 to 24 months of bank statements, 1099s or profit-and-loss statements.
Conventional loans reward stronger credit and savings, and their mortgage insurance can be removed. FHA loans are more flexible on credit and down payment, but their mortgage insurance may last for the life of the loan.
Ready to Apply for an FHA or VA Loan?
Get your free quote today Contact us or Call: 516-327-6000
Email: sunnyjain@amcaps.com
Address: 439 Main Street, Suite 102, Orange, NJ 07050