What is a conventional loan?
A conventional loan is a mortgage that is not insured or guaranteed by a federal government program, such as FHA, VA, or USDA. You borrow money to buy or refinance a home and repay it over an agreed term, with interest.
Conventional loans can work for first-time buyers, people moving to their next home, and buyers purchasing a second home or investment property. Each situation has different requirements. You do not have to be a repeat buyer, and you do not always need a 20% down payment.
Our job is to make the choices feel manageable. Amy DeBusk, Branch Manager and Mortgage Advisor with loanDepot, brings 25+ years of experience to conversations about your home, your finances, and the life you want to build.
How much do you need to put down?
Some conventional programs allow eligible buyers to put as little as 3% down on a primary residence. Availability depends on the program, property, and your qualifications. Certain options have first-time buyer or income requirements; others do not.
A larger down payment reduces the amount you borrow and may lower your monthly costs. A smaller one can leave more savings available for moving, repairs, and everyday life. We will help you compare both within a house spending plan that feels comfortable.
- Down payment: The part of the purchase price you pay upfront.
- Closing costs: Separate expenses for completing the loan and purchase, plus items such as prepaid insurance and escrow deposits.
- Savings after closing: Money for your emergency fund and the costs of settling into your home. Some loans also require a specific amount in reserves.
Eligible gift funds or assistance may help with upfront costs, subject to documentation and program rules. Explore down payment assistance options with us before assuming you need to save every dollar on your own.
What is PMI, and how does it affect your payment?
Private mortgage insurance, or PMI, is generally required on a conventional loan when you put less than 20% down. It protects the lender if you stop making payments. It does not replace homeowners insurance or protect you from losing your home.
PMI adds to your borrowing costs, but it can also make buying with a smaller down payment possible. Its cost depends on factors such as your credit profile and down payment. We will show you how it affects your payment alongside principal, interest, property taxes, homeowners insurance, and any HOA dues.
Borrower-paid PMI may be canceled once you meet the applicable requirements. Your loan balance, payment history, property value, and loan servicer's rules can matter. An increase in home value does not automatically remove it. Before refinancing solely to eliminate mortgage insurance, compare the new loan's costs and terms. Our guide to removing mortgage insurance explains what to consider.
What does a lender look at?
Approval is based on your overall financial picture and the home you want to buy. Amy and our team will walk through:
- Credit history: How you have managed credit and payments.
- Income and employment: Documented income that supports repayment.
- Monthly debts: How your existing obligations and proposed housing payment compare with your income.
- Savings: Funds for your down payment, closing costs, and any required reserves.
- The property: Its value, condition, and intended use, along with any applicable condo project requirements.
Self-employed? You may still qualify for conventional financing. Our self-employed home loan guide is a helpful starting point for understanding documentation. If you are buying a home with family, we can also discuss how applying together may affect qualification and responsibilities.
A mortgage pre-approval helps you understand your options before you shop. It is a review of your finances, with final approval still dependent on the property and remaining loan conditions.
Fixed rate or adjustable rate: what is the difference?
A fixed-rate mortgage keeps the same interest rate for the life of the loan. On a standard fully amortizing loan, your scheduled principal and interest payment stays the same. Your total monthly payment can still change if taxes or insurance costs change.
An adjustable-rate mortgage, or ARM, typically starts with a fixed rate for an introductory period. After that, the rate and payment may change according to the loan's terms and adjustment limits. We will review when changes can occur and what a higher payment could mean for you.
The right choice depends on your spending plan and how long you expect to keep the loan. Plans can change, so an ARM should still make sense if you stay longer than expected. Selling or refinancing before an adjustment is not guaranteed. Already have an ARM? Explore moving from an ARM to a fixed-rate loan.
Conforming, high-balance, and jumbo, explained simply
Many conventional loans are conforming loans, which meet Fannie Mae or Freddie Mac guidelines, including a maximum loan amount. Those limits depend on the year, property location, and number of units.
In designated higher-cost counties, a high-balance conforming loan can allow a larger loan within that county's limit. A jumbo loan exceeds the applicable conforming limit. Jumbo loans are also conventional loans, but have different qualification guidelines.
We will check the current limit for the home you are considering in Roseville, Sacramento, or the surrounding area. If you need to borrow more, our jumbo loan page explains that option. The loan amount, rather than the home's price alone, determines whether you exceed the limit.
Is conventional the right fit, or should you compare other options?
There is no single loan that is best for everyone. We compare the money needed at closing, monthly payment, mortgage insurance, and longer-term costs using your actual situation.
- FHA loans may be worth comparing if you need more flexible credit guidelines. FHA has its own mortgage insurance costs and rules.
- VA loans offer benefits for eligible veterans, service members, and certain surviving spouses, including no monthly mortgage insurance.
- USDA loans may be an option when the property location and household income meet program requirements.
Our FHA vs. conventional loan guide walks through the key differences. Then we can put the options side by side for your home goals.
Buying a home that needs significant work? Explore FHA 203(k) renovation financing and renovation and construction options. A standard purchase loan may not cover the repairs you have in mind.
Start with the next step that fits you
You do not need to know every mortgage term before we talk. Start with what you want your next home to make possible.
- Buying your first home? Follow the roadmap in our First-Time Home Buyer Hub, then explore practical articles in the First-Time Buyer Resource Center.
- Planning a move? Explore move-up home financing or our guide to moving to Sacramento.
- Working on your spending plan? Use the mortgage calculator for an initial estimate. We can help you account for costs beyond principal and interest.
- Already own a home? Review refinance options to see which questions to bring to our conversation.
Your conventional loan questions, answered
Do I need 20% down for a conventional loan?
No. Some programs offer as little as 3% down for eligible primary-home buyers. Your required down payment depends on the program, property, and qualifications. Less than 20% down generally means PMI, which we will include when comparing costs.
Are conventional loans only for people who have owned a home before?
No. First-time buyers can use conventional loans, too. Some low-down-payment programs are designed specifically to help eligible first-time or lower-income buyers. We will check which options fit you.
Can I use a conventional loan for a condo or townhome?
Often, yes. The home must meet the loan's property requirements. Condominiums may also require a review of the project, association finances, and insurance. Share the property with us early so we can review the requirements before you move forward.
Can a conventional loan finance a second home or rental property?
Yes, eligible second homes and investment properties can qualify, with different down payment, reserve, and other requirements from a primary residence. Tell us how you plan to use the property. Investors can also explore DSCR loan options to compare financing based on a property's rental income.
Can PMI go away without refinancing?
Yes, eligible borrower-paid PMI can be canceled or terminate under applicable rules without replacing your mortgage. Ask your loan servicer about your specific requirements. Refinancing is a separate decision that should account for closing costs, the new interest rate, and the loan term.
How do I get started?
Schedule a conversation with Amy or start your application. We will talk through your goals, review the information needed, and explain your next steps. You can also call or text (916) 705-2557.
For additional education, see the Consumer Financial Protection Bureau's explanations of conventional loans and PMI cancellation. Loan approval, terms, and program availability depend on eligibility and applicable guidelines.