What Is a Conventional Home Loan?
A conventional mortgage is outside a specific government loan insurance or guaranty program, such as FHA or VA. Private lenders make these loans.
Conforming financing
Meets the applicable loan-size limits and other Fannie Mae or Freddie Mac requirements, along with lender rules.
Non-conforming financing
Falls outside conforming requirements. Jumbo loans exceed the applicable conforming size limit; other non-conforming programs have different features.
Source: CFPB: Conventional loan categories.
How Much Down Payment Will I Need?
Some conventional programs allow as little as 3% down for eligible borrowers. Requirements vary by program, loan purpose, property and occupancy. A larger down payment may reduce the loan amount and affect pricing or insurance costs.
A hypothetical $500,000 purchase
| Example down payment | Down-payment amount | Base loan amount |
|---|---|---|
| 3% | $15,000 | $485,000 |
| 5% | $25,000 | $475,000 |
| 20% | $100,000 | $400,000 |
Illustrative math only, assuming the value supports the calculation. These scenarios do not establish eligibility or an offer. Closing costs, prepaid expenses and any required reserves are additional considerations.
Plan for both the cash needed to close and the funds you want available afterward. Compare payments and costs at the down-payment levels you are considering.
Explore Low-Down-Payment Programs
HomeReady®
Fannie Mae’s HomeReady may allow 3% down for qualifying borrowers purchasing a principal residence. Qualifying income generally cannot exceed 80% of area median income for the property’s location.
Home Possible®
Freddie Mac’s Home Possible offers low-down-payment financing for eligible borrowers, with qualifying income limited to 80% of area median income.
These programs have additional requirements. Other conventional programs use different eligibility rules. Ask which options fit your income, property, available funds and homebuyer history.
Acceptable gifts, grants or assistance may help with required funds, subject to program rules and documentation. Review any repayment obligation or restrictions before including assistance in your budget.
Sources: Fannie Mae: HomeReady and Freddie Mac: Home Possible.
How Does Private Mortgage Insurance Work?
For many standard conventional loans, a down payment below 20% means private mortgage insurance (PMI). It protects the lender if you default and adds to your borrowing cost.
PMI cost and payment arrangements vary. Compare the insurance charge along with the interest rate, fees and total payment.
Can PMI be removed later?
For many borrower-paid PMI loans on single-family principal residences, these general rules apply:
| Milestone | General rule |
|---|---|
| 80% of original value | You may request cancellation when the principal balance reaches the applicable threshold, subject to conditions. |
| Scheduled 78% of original value | PMI generally terminates automatically at this scheduled balance milestone if payments are current. |
Requested cancellation involves conditions such as payment history, current payments, junior liens and evidence of property value. Increased value may support another permitted cancellation route, but ask your servicer for the rules and required documentation.
Original value generally uses the lower of purchase price or appraisal at purchase; refinance rules differ. Exceptions and other termination provisions may apply. Sources: CFPB: PMI and PMI cancellation.
What Are the Conforming Loan Limits?
For one-unit properties in 2026, the baseline conforming limit in most U.S. counties is $832,750. Certain high-cost counties have higher limits, and special rules apply in Alaska, Hawaii, Guam and the U.S. Virgin Islands. Multi-unit properties have different limits.
A loan above the baseline may still qualify as high-balance conforming financing when it is within the applicable county limit and meets the other requirements. A jumbo loan exceeds the applicable conforming size limit.
Source: FHFA’s 2026 limits announcement. Check the official county limits for the property, unit count and transaction year.
Conventional vs. FHA Financing
| Consideration | Conventional | FHA |
|---|---|---|
| Down payment | Low-down-payment programs available to eligible borrowers. | As low as 3.5% for eligible borrowers. |
| Credit review | Program and lender requirements apply. | Generally more flexible credit standards. |
| Mortgage insurance | PMI commonly applies below 20% down; cancellation may be available. | Generally upfront and ongoing MIP, with FHA duration rules. |
| Cost comparison | Compare rate, insurance, loan costs, cash to close and total payment for your scenario. | |
Either option may fit depending on your credit, available funds and property. If you have VA eligibility, include the relevant VA options in the conversation as well.
Resources: CFPB’s FHA overview and mortgage insurance guide.
What Do Lenders Review?
- Credit profile and payment history
- Documented qualifying income and employment, as applicable
- Monthly debts and debt-to-income ratio
- Funds for closing and any required reserves
- Property value, type, condition and intended occupancy
- Loan purpose, amount and applicable program requirements
Discuss how your income is documented, especially if you are self-employed or have multiple income sources. The lender determines which records and calculations are needed.
Choose the Structure Around Your Budget
Fixed rate
The interest rate stays fixed for the term. Taxes, insurance and other payment components can still change.
Adjustable rate
The rate may change after an initial period. Review the adjustment rules, caps and potential future payments.
Also compare the loan term. A shorter term generally increases the monthly principal-and-interest payment while reducing the time over which you pay interest.
Use comparable Loan Estimates to evaluate rate, points, lender credits, insurance, loan costs and cash to close. Review how the payment fits your budget and expected ownership period.
Sources: CFPB: Loan structures and comparing Loan Estimates.
Prepare for Your Conversation With Stan
Start with the purchase price or property value, loan goal, location, occupancy, income sources, monthly debts and available funds.
Depending on your scenario, the lender may request:
- Identification and credit authorization
- Pay records, W-2s, tax returns or other income support
- Business records for self-employed income
- Deposit and investment account statements
- Gift or assistance documentation, if applicable
- Purchase contract or existing mortgage information
Discuss a secure delivery method before sending records. This preview does not accept financial documents.
Resource: CFPB: Preparing your paperwork.
Common Questions
Do I need 20% down for a conventional loan?
Some programs allow smaller down payments for eligible borrowers. Compare qualification, PMI, payment and total costs for the options available to you.
Does every conventional loan have an income limit?
Eligibility varies. HomeReady and Home Possible have income limits; other conventional programs use different rules.
Is a jumbo loan conventional?
A jumbo mortgage can be conventional financing. It is non-conforming because its size exceeds the applicable conforming limit.
Can I remove PMI without refinancing?
It may be possible when the applicable cancellation or termination conditions are met. Ask your servicer about your loan’s rules, timeline and documentation.
Can gift funds help with closing?
Acceptable gifts may help under certain programs. The lender must verify the source and documentation and confirm which costs the funds can cover.
How do I choose between conventional and FHA?
Compare the options you qualify for using the complete costs, insurance rules, cash needed and payment structure.
Bring your goals. Compare your possibilities.
Talk with Stan about your budget, income and property plans. Explore relevant financing options through West Capital Lending’s wholesale lending network.
No obligation to apply. Online requests are in preview mode and are not submitted yet.
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For educational purposes only. Linked resources describe general concepts or program rules and do not establish the options available for your scenario. Loan programs, rates, terms and eligibility may change. All loans are subject to credit approval, property valuation, underwriting and applicable lender guidelines. This page is not a commitment to lend or a guarantee of approval, rate, loan amount or terms. Availability depends on borrower qualifications, property, state licensing and lender requirements.