Conventional Loans: Complete Guide
No income limits. No location restrictions. Buy any property type. Conventional loans are the most flexible mortgage available, and Mortgages by Channing closes them every day.
The Basics
What Is a Conventional Loan?
A conventional loan is any mortgage not backed by a government agency. Unlike FHA, USDA, or VA loans, conventional loans are issued and guaranteed through private channels, either held by lenders directly or sold to Fannie Mae and Freddie Mac on the secondary market.
That distinction matters because it means no income limits, no geographic restrictions, and no primary-residence requirement. Conventional loans can finance primary homes, second homes, and investment properties. They're the most widely used mortgage type and often the best option for buyers with solid credit and stable income.
Conforming vs. non-conforming
Most conventional loans are "conforming", they meet Fannie Mae and Freddie Mac size and credit standards. Loans above the conforming limit ($806,500 in 2025 for most areas) are "jumbo" loans, still conventional, but with stricter requirements and different pricing. Everything in this guide applies to conforming loans unless noted otherwise.
When Conventional Wins
- 620+ credit score with 10 to 20% downPMI either disappears at 20% down or cancels automatically at 20% equity, unlike FHA MIP.
- Buying an investment property or second homeFHA and USDA are primary residence only. VA is primary at time of purchase. Conventional has no occupancy restriction.
- High-income buyers with good creditNo income caps. No household income counting. Qualify on your own numbers.
- Buyers who want PMI to go awayRequest cancellation at 20% equity. Auto-cancels at 22%. FHA MIP can stay for the life of the loan.
- Jumbo loan needsFHA and USDA have loan limits. Conventional jumbo loans go well beyond conforming limits.
When Government Loans May Win
- Credit below 620FHA goes down to 580 (3.5% down) or 500 (10% down). Conventional typically requires 620 minimum.
- Very limited down payment savingsUSDA and VA offer zero down for eligible buyers. Conventional starts at 3% but PMI adds to monthly cost.
- High DTI with limited compensating factorsFHA allows up to 57% DTI in some cases. Conventional caps at 43 to 50% for most borrowers.
- Eligible veteransVA beats conventional in almost every category for eligible borrowers, no PMI, no down payment, competitive rates.
Eligibility
Conventional Loan Requirements
Conventional loans have stricter baseline requirements than government-backed loans, but more flexibility in other areas. See the full requirements breakdown →
| Requirement | Conventional Standard (2025) |
|---|---|
| Minimum Credit Score | 620 (higher for better rates) |
| Minimum Down Payment | 3% (with HomeReady / Home Possible) |
| Standard Down Payment | 5 to 20% for most borrowers |
| Max Debt-to-Income | 45 to 50% (up to 50% with DU approval) |
| PMI Required | Yes, if down payment under 20% |
| Conforming Loan Limit | $806,500 (2025, most areas) |
| Employment History | 2 years, same field |
| Bankruptcy (Ch. 7) | 4-year waiting period |
| Foreclosure | 7-year waiting period |
| Income Limit | None (except HomeReady / Home Possible) |
| Property Types | Primary, second home, investment, all allowed |
Longer waiting periods after derogatory events
Conventional loans have stricter waiting periods than FHA, 4 years after Chapter 7 bankruptcy vs. FHA's 2 years, and 7 years after foreclosure vs. FHA's 3 years. If you've had a recent bankruptcy or foreclosure, FHA may be the faster path to homeownership. See conventional after bankruptcy →
Credit
How Credit Score Affects Your Conventional Loan
Credit score matters more on a conventional loan than any other loan type, because it directly drives your interest rate and PMI cost. A 760 borrower and a 640 borrower can qualify for the same loan but pay dramatically different rates. See the full credit score guide →
Excellent
Best rates + lowest PMI
Pricing is at its best. PMI rates are minimal. Competing with other loan types on every metric.
Good
Strong rates, reasonable PMI
Solid qualification. Rates and PMI costs are competitive. Most buyers in this range do well with conventional.
Fair
Higher rate adjustments
Loan-level price adjustments (LLPAs) start to bite. Compare conventional vs FHA at this range, FHA may offer a lower effective rate.
Minimum
At or near conventional floor
Qualifying is possible but pricing is significantly worse. FHA almost certainly has a better rate at this score range.
Want To Know What This Looks Like On Your Numbers?
Every scenario is different. A soft credit check tells you where you actually stand, and nothing hits your report until you decide to move forward.
Down Payment
Conventional Down Payment Options
Conventional loans offer the widest range of down payment options, from 3% all the way to 100% cash. The tradeoff: lower down payments mean PMI, and PMI costs vary by credit score. See the full down payment guide →
Down Payment by Scenario
- 3%HomeReady / Home PossibleIncome limits apply. First-time buyer programs with 3% down and reduced PMI rates.
- 5%Standard minimum for most borrowersMost lenders require 5% for conventional without income-restricted programs.
- 10%Lower PMI, stronger offerPMI rates drop significantly at 10% down. More competitive in purchase situations.
- 20%No PMI20% down eliminates PMI entirely, no waiting, no cancellation request needed.
- 25%Investment / second home standardMost lenders require 15 to 25% down for non-owner-occupied properties.
Down Payment by Purchase Price
| Price | 5% Down | 20% Down |
|---|---|---|
| $200,000 | $10,000 | $40,000 |
| $300,000 | $15,000 | $60,000 |
| $400,000 | $20,000 | $80,000 |
| $500,000 | $25,000 | $100,000 |
Mortgage Insurance
Private Mortgage Insurance (PMI)
PMI is required when you put less than 20% down on a conventional loan. Unlike FHA's MIP, conventional PMI is cancellable, and it's often the better long-term choice even when FHA rates look lower upfront. See the full PMI guide →
How PMI Works
PMI protects the lender if you default. Typical cost: 0.2% to 1.5% of the loan annually, divided into monthly payments. Your exact rate depends on credit score, loan-to-value ratio, and loan type.
On a $300,000 loan at 0.6% PMI: approximately $150/month.
When PMI Goes Away
- Request cancellation at 20% equitySubmit a written request to your servicer once your balance drops to 80% of original value.
- Auto-cancels at 22% equityFederal law (HPA) requires automatic PMI cancellation when you reach 78% LTV based on original schedule.
- New appraisal if home has appreciatedIf your home has appreciated, you can request cancellation earlier based on current value.
PMI vs. FHA MIP, the long game
FHA MIP stays for the life of the loan if you put less than 10% down. Conventional PMI cancels at 20% equity. A borrower who puts 5% down conventional and cancels PMI at 20% equity often pays less total mortgage insurance than the same borrower on FHA, even though PMI is higher per month initially. Run the numbers with Mortgages by Channing before choosing.
Why Conventional
Benefits of a Conventional Loan
For buyers with solid credit and stable income, conventional loans offer advantages no government-backed loan can match.
Any Property Type
Primary homes, second homes, and investment properties all qualify. No occupancy restrictions.
No Income Limits
High earners aren't penalized. No household income counting. No area median income caps.
PMI Cancellable
PMI drops off at 20% equity, unlike FHA MIP which can last for the life of the loan.
Higher Loan Amounts
Jumbo conventional loans go beyond the $806,500 conforming limit for higher-value purchases.
Flexible Refinance
No program-specific refinance restrictions. Cash-out, rate-and-term, or removing PMI, all available.
No Geographic Limits
Unlike USDA, conventional loans work in any location, urban, suburban, or rural.
Want To Know What This Looks Like On Your Numbers?
Every scenario is different. A soft credit check tells you where you actually stand, and nothing hits your report until you decide to move forward.
Comparison
Conventional vs. FHA Loan
The most common comparison in mortgage lending. Which is better depends entirely on your credit score, down payment, and how long you plan to stay. See the full comparison →
| Factor | Conventional | FHA |
|---|---|---|
| Min. Credit Score | 620 | 580 (3.5% down) |
| Min. Down Payment | 3 to 5% | 3.5% |
| Mortgage Insurance | PMI, cancels at 20% equity | MIP, life of loan (<10% down) |
| Max DTI | 43 to 50% | Up to 57% |
| Investment Properties | Allowed | Not allowed |
| Income Limit | None | None |
| Bankruptcy Wait | 4 years (Ch. 7) | 2 years (Ch. 7) |
| Best For | 620+ credit, investment, long-term | Under 620 credit, limited savings |
The Process
How to Apply for a Conventional Loan
The conventional loan process is the most straightforward of any mortgage type, no government agency involvement, no special appraisal requirements, and typically the fastest timelines.
Get Pre-Approved
We pull credit, verify income and assets, and run your file through automated underwriting (DU or LP). Pre-approvals typically issue within 24 hours with complete documentation.
Find Your Property
Shop with confidence. Conventional loans have no minimum property standards beyond a standard appraisal, no government MPS or MPR checklists to navigate.
Submit Your Documents
Two years of tax returns and W-2s, 30 days of pay stubs, two months of bank statements. Investment property purchases require additional asset documentation.
Appraisal & Underwriting
A conventional appraisal confirms market value. Underwriting reviews the full file, credit, income, assets, and property. Most files clear in 3 to 5 business days with a complete package.
Close on Your Home
Sign closing documents, wire your down payment and closing costs, get your keys. Average conventional close time: 21 to 28 days from completed application, faster than government-backed loans.
Ready to Get Pre-Approved?
Mortgages by Channing closes conventional loans every day. Tell us your situation and we'll tell you exactly where you stand.
Common Questions
Conventional Loan FAQ
Straight answers to the most common conventional loan questions.
The Application
Apply From Your Phone In Fifteen Minutes
The whole application runs on your phone. Snap photos of your documents, connect your bank, and you're done. It reaches me the minute you submit it.
- Starts with a soft credit check, so your score is never touched
- We run conventional next to FHA so you see both payments
- Upload documents with your phone camera, no scanner needed
- You hear back from Channing, not from a call center queue
If the numbers say wait, I'll tell you that too, and then we make a plan to fix whatever is in the way.
Complete Your Application
Five short steps. Most people finish in about fifteen minutes.
- Tell us what you're looking for
- We check your conventional numbers
- Upload your documents
Your pre-approval letter is ready. I sent it to your email and to your agent.
Got your application. I'm reviewing it now and will call you this afternoon.
Real Closings
Real Clients.
Real Closings.
Real families we have helped get from pre-approval to keys in hand.
Find Out Where You
Actually Stand
A soft credit check tells you what you qualify for before anyone pulls hard credit. If the numbers say wait, I will tell you that too, and then we make a plan to fix whatever is in the way.
See What I Qualify ForMortgages by Channing · 337-476-2623 · Licensed across Louisiana · NMLS #1457759
