Conventional Loans
The most commonly used and widely available mortgage program. Flexible financing for buyers with steady income, good credit, and funds available for a down payment.
Introduction to Conventional Loans
How conventional financing works in plain English.
What Is a Conventional Loan?
A conventional loan is the most commonly used mortgage program and the most widely available. Conventional loans are for individuals who have steady income, good credit, and have funds available for a down payment.
A conventional loan is not insured by the federal government (unlike USDA, FHA, and VA loans) and is often the preferred route to home financing for many homebuyers. The underwriting process typically goes quicker than on government-backed loans.
Terms & Private Mortgage Insurance (PMI)
Conventional loans are available in fixed-rate or adjustable-rate (ARM) loans and have terms of 15, 20, or 30 years. The shorter the term, the lower the interest rate.
Private mortgage insurance (PMI) is required on top of your regular PITI payment when you have less than 20% equity in the home. If you put down less than 20%, the PMI will automatically fall off when you reach 22% equity in the home, although you can request that it be removed earlier (at 20%).
Purchases
Conventional loans follow Fannie Mae and Freddie Mac guidelines. Below are general eligibility requirements. Because each situation is unique, make sure to call us to determine your exact qualifications.
- Credit scores: Generally 620 or above.
- Income & Debt: Mortgage payment cannot exceed 31% of monthly gross income, and total debts (house, car, student loans, etc.) cannot exceed 45%.
- Down payment: Typical minimum is 5%. You may be eligible for 3% down if you meet the county income threshold.
- Credit history: No derogatory credit events in at least the last 4 years.
Refinances
Conventional refinance loans follow the same Fannie Mae and Freddie Mac guidelines regarding credit and income.
- Lower your monthly payment by locking in a lower rate or switching loan programs.
- Shorten your loan term (e.g. from 30 years to 15 or 20) to pay off your home faster.
- Equity & PMI: Like a purchase, if you have less than 20% equity in the home, private mortgage insurance will be required as part of your regular monthly payment.
- Cash-out options: Tap your built-up home equity for debt consolidation, investments, or large expenses.
Home Improvement
We offer construction and renovation loans as well for borrowers building a new home or remodeling an existing home. There is a two-part process: borrowers are approved for the mortgage following standard conventional guidelines, and the contractor and project are approved for the construction. These loans can take longer than a regular conventional loan due to this dual approval.
Construction Loans
The borrower makes interest-only payments during the construction period. Once construction is completed, qualifications are re-checked and regular, full monthly payments begin.
Renovation Loans
The borrower begins regular monthly payments right away, including during the renovation period. The costs for the renovation are wrapped directly into the loan amount.
What Documents Will I Need?
Below is a general list of documents needed for a conventional loan. You may need more or fewer documents depending on your unique situation:
Frequently Asked Questions
Common questions about conventional loans and qualification.
Ready to Pre-Qualify for a Conventional Loan?
We are here to walk you step-by-step through the process. To see if you pre-qualify for a Conventional home loan, contact Jay Dacey, NMLS #375033 today.
Direct access to Jay Dacey (NMLS #375033) • Jay Dacey Mortgage Team, Inc. (NMLS #1812066)
What Our Clients Say
Real feedback from Minnesota, Wisconsin, North Dakota, and Florida homebuyers and refinancers.
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I have yet to actually buy a house myself, mostly due to my own questions on what I want, but Jay came highly recommended from a trusted co-worker. He has helped me through multiple choices, questions, potential properties, and helped my sister with her mortgage too. I would highly recommend Jay and his team!
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THANK YOU to Molly and the Jay Dacey Team! During a refinance of my mortgage loan for lowering my interest rate, lowering my mortgage payment, and squaring away my escrow account! Engaged and responsive! Handled a difficult purchase previously and executed flawlessly.
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