What Makes a Mortgage “Conventional”?
The easiest way to understand conventional financing is by comparison.
- FHA: Insured by the Federal Housing Administration.
- VA: Guaranteed in part by the Department of Veterans Affairs for eligible borrowers.
- USDA: Backed through USDA Rural Development programs for eligible borrowers and properties.
- Conventional: Not federally insured or guaranteed in the same way.
That does not mean there are no rules.
Conventional loans still have underwriting standards established by:
- Lenders
- Investors
- Fannie Mae/Freddie Mac where applicable
- Mortgage insurers where applicable
What Is a Conforming Conventional Loan?
A conforming conventional mortgage meets applicable requirements for purchase by Fannie Mae or Freddie Mac.
Those requirements involve areas such as:
- Loan size
- Borrower qualification
- Property type
- Documentation
- Underwriting
Loan limits can change annually and may vary by location.
Do not hard-code a specific conforming loan limit into this article as a permanent rule. Conforming loan limits are set annually by the FHFA and vary by location: check the current limit with the FHFA or your lender.
Read more in What Is a Conforming Mortgage? and the comparison in Jumbo vs. Conventional.
Can You Put Less Than 20% Down on a Conventional Loan?
Yes, depending on the borrower and program.
Fannie Mae currently describes qualifying conventional/conforming options with down payments potentially as low as 3%.
That does not mean every buyer qualifies for 3% down.
The actual requirement depends on:
- Program
- Occupancy
- Property
- Income where program-specific
- Credit
- Loan structure
- Other underwriting requirements
What Happens If I Put Less Than 20% Down?
Certain conventional mortgages may require private mortgage insurance, commonly called PMI.
PMI can add to the monthly housing cost.
However, the ability to purchase with less than 20% down can help buyers avoid waiting years to accumulate a larger down payment.
The correct decision depends on the numbers.
Dive into the details in What Is PMI? and Conventional Loan Down Payment.
Why Do Buyers Choose Conventional Financing?
Potential reasons include:
- Flexible down-payment structures
- Broad availability
- Potential PMI cancellation options under applicable rules
- Competitive rates for qualified borrowers
- Financing for various property types
- Fixed-rate and adjustable-rate options
Is Conventional Financing Only for Buyers With Perfect Credit?
No.
Conventional underwriting considers credit, but there is no single universal buyer profile.
However, credit characteristics can affect:
- Eligibility
- Interest rate
- PMI cost
- Required down payment
- Overall financing terms
A buyer with stronger credit may receive more favorable conventional pricing than another borrower.
Conventional Financing and Condos
Conventional condo financing can involve review not only of the borrower but also of the condominium project.
Potential project issues can involve:
- Insurance
- Litigation
- Financial condition
- Owner occupancy
- Structural concerns
- Project eligibility
A buyer can be financially qualified and still encounter a property/project financing problem.
For the property side of a condo purchase, review HOA fees and community considerations before you commit to an offer.
Conventional Financing and Investment Property
Conventional mortgages can also be used for certain investment properties, though down-payment, pricing, reserve and qualification requirements may differ from owner-occupied financing.
Investors should not assume primary-residence loan terms apply to rentals.
For investor-specific guidance, see Invest in Las Vegas.
Example
Buyer A has:
- Strong credit
- Stable income
- Moderate down payment
- Primary residence purchase
Buyer B has:
- Similar income
- Lower credit
- Smaller reserves
- Investment property
Both may explore conventional financing, but the terms could look very different.
Conventional vs. Government-Backed Doesn’t Mean Better vs. Worse
A common mistake is treating conventional financing as “good” and FHA as “bad.”
These are tools.
The best structure depends on:
- Borrower profile
- Property
- Cash available
- Monthly payment
- Mortgage insurance
- Long-term plans
Compare the two paths side by side in Conventional vs. FHA.
How Lisa Helps
Lisa can help evaluate whether a particular property is likely to create issues that matter to the financing conversation.
For example:
- Condo project
- Property condition
- Multiple units
- Manufactured housing
- HOA
- Solar obligations
- Appraisal concerns
The lender determines whether conventional financing is approved.
Lisa helps make sure the property search and transaction strategy reflect those financing realities.
Start with a free Property DNA report on a specific property, use the mortgage calculator, and talk with Lisa about the search.
