Conventional Loans

Advantages of Conventional Loans

Conventional loans give you a lot of room to build a loan that fits your plans. Here are the biggest benefits:

• Mortgage insurance can go away. If you put less than 20% down you'll pay private mortgage insurance (PMI), but you can ask to remove it once you reach 20% equity, and it ends automatically at 22% equity in most cases.
• Any type of property. You can use a conventional loan for a primary home, a second home or an investment property.
• Flexible terms. Choose a fixed rate or an adjustable rate, and terms from 10 to 30 years.
• Fewer property rules. Appraisal standards are usually less strict than government programs, which can help in competitive markets.
• Better pricing for strong credit. Borrowers with higher scores and larger down payments often get the lowest overall cost.

Down Payment Requirements

Many people still believe you need 20% down. You don't. Some conventional programs allow as little as 3% down for first-time buyers or buyers who meet income guidelines, and 5% down is common for everyone else (as of 2026, subject to change).

Putting down 20% or more lets you skip PMI entirely. A larger down payment also lowers your monthly payment and can improve your pricing. Down payment money can come from savings, retirement accounts, the sale of another home or a documented gift from a family member.

Second homes usually need at least 10% down, and investment properties usually need 15% to 25% down, depending on the number of units.

Eligibility Requirements

Every lender looks at the same basic building blocks. Here's what a conventional loan typically calls for (as of 2026, subject to change):

• Credit score: Usually 620 or higher. Higher scores unlock better pricing.
• Debt-to-income ratio (DTI): Generally up to 45%, and sometimes up to 50% with strong credit and savings.
• Stable income: Usually a two-year history of employment or self-employment income you can document.
• Loan amount: Must be at or below the conforming loan limit for your county. Above that is a jumbo loan.
• Reserves: Some loans require savings left over after closing, often measured in months of payments.

Conventional vs Government-backed Loans

Government-backed loans (FHA, VA and USDA) exist to help specific groups of buyers. Because the government protects the lender, these loans can allow lower credit scores or smaller down payments. VA and USDA loans can even allow zero down.

The trade-off is cost and flexibility. FHA loans charge an upfront mortgage insurance premium plus an annual premium that, in many cases, lasts for the life of the loan. Government programs also have stricter property condition rules and are generally limited to primary homes.

If your credit is solid, a conventional loan often costs less over time. If your credit is still rebuilding, a government loan may be the easier door to walk through. I'll run both side by side for you so you can see the real numbers.

Refinancing an FHA Loan into a Conventional Loan

A lot of homeowners start with an FHA loan and later move into a conventional loan. The main reason is to get rid of FHA mortgage insurance. If your home value has gone up or you've paid down your balance, you may now have 20% equity or more, which means a conventional loan with no mortgage insurance at all.

It can also make sense if your credit score has improved since you bought. Keep in mind that refinancing has closing costs, so we'll look at how long it takes for your monthly savings to cover those costs before you decide.

Closing Costs

Closing costs on a conventional loan usually run about 2% to 5% of the loan amount. They include lender fees, the appraisal, title insurance, recording fees and prepaid items like property taxes and homeowners insurance.

There are several ways to reduce what you bring to closing. The seller can contribute toward your costs (usually 3% to 9% depending on your down payment, as of 2026, subject to change), you can accept a lender credit in exchange for a slightly higher rate, or you can use gift funds. You'll get a Loan Estimate within three business days of applying so there are no surprises.

Qualifying for a Conventional Loan When Owing Taxes

Owing the IRS doesn't automatically stop you from buying a home. If you owe back taxes, you can usually still qualify for a conventional loan if you have an approved installment agreement with the IRS and you've made your payments on time. The monthly payment is counted in your debt-to-income ratio.

A tax lien is more serious. In most cases, a recorded lien must be paid off or subordinated before closing. If you owe for the current year but it isn't past due, it usually isn't an issue. Bring me your IRS paperwork early and we'll build a plan.

Conventional vs. FHA: Breaking It Down

Here's a quick side-by-side comparison. Figures are general guidelines as of 2026, subject to change, and your situation may differ.