Conventional Loans
Understanding Key Features & Benefits
Conventional Loans
Your Path to Homeownership
At SRK CAPITAL, we understand that choosing the right loan is crucial for your financial success.
Conventional loans stand out as the preferred choice for many home buyers seeking flexibility, lower costs, and favorable terms. With a variety of conventional loan choices available, these great home financing solutions can be customized to meet your specific needs.
Whether you're a first-time homebuyer with excellent credit, looking to purchase an investment property, or seeking a conventional loan for a second home, conventional loans offer distinct advantages over government-backed FHA, VA, and USDA loans. Let's explore why conventional loans are the smart choice for your homebuying journey through our comprehensive conventional mortgage guide.
- ✓Competitive interest rates with good credit
- ✓Down payments as low as 3% for first-time buyers
- ✓Removable mortgage insurance (unlike FHA loans)
- ✓Flexible property options (primary, second homes, investments)
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What Is A Conventional Loan?
A conventional mortgage loan is not directly insured by any government program, setting it apart from FHA, VA, and USDA loans. Most conventional loans are classified as "conforming" loans, which means they adhere to the guidelines established by Fannie Mae and Freddie Mac, two Government Sponsored Enterprises (GSEs).
These GSEs play a vital role in the mortgage ecosystem by:
- Purchasing mortgages from lenders
- Holding mortgages in their investment portfolios
- Packaging loans into mortgage-backed securities (MBS)
- Providing lenders with capital for new loans
This system creates liquidity in the mortgage market, making home loans more accessible and affordable for qualified borrowers across our service areas in Alabama, Arizona, California, Colorado, Florida, Idaho, Oregon, Tennessee, Texas, and Washington.
Fannie Mae & Freddie Mac
These government-sponsored enterprises (GSEs) set the standards for conforming loans and help maintain stability in the mortgage market.
Flexible Term Options
15-Year Term
- ✓Lower interest rates
- ✓Higher monthly payments
- ✓Faster equity building
- ✓Less total interest paid
30-Year Term
- ✓Lower monthly payments
- ✓More budget flexibility
- ✓Greater purchasing power
- ✓Popular for first-time buyers
How Does A Conventional Loan Work?
Conventional loans follow a straightforward process similar to other mortgage types, but with key differences in qualification criteria and terms:
Application
You apply to a lender like SRK CAPITAL for a specific loan amount based on your home price and down payment.
Qualification Review
Our team evaluates your creditworthiness, income stability, debt-to-income ratio, and other financial factors.
Approval
Upon meeting the requirements, your loan is approved with specific terms based on your financial profile.
Closing
You complete the purchase of your new home, signing all necessary documentation.
Repayment
You repay the loan through regular monthly installments over your chosen term (typically 15 or 30 years).
What Makes Conventional Loans Different?
Unlike government-backed loans, conventional loans rely on your financial strength rather than government insurance to secure approval. This means qualification standards are typically more stringent, but the process is often faster with less paperwork and greater flexibility.
With SRK CAPITAL's efficient loan processes, most conventional loans can close in as little as 14 days, getting you into your new home faster.
Did you know?
Conventional loans account for approximately 65% of all mortgages in the United States, making them the most common type of home loan.
Conventional Loan Requirements
Like all mortgage types, conventional loans have specific qualification criteria you'll need to meet. These qualification requirements follow traditional lending standards set by Fannie Mae and Freddie Mac. Understanding these requirements will help you determine if a conventional loan is right for your situation.
Filter requirements by category:
Down Payment Guidelines
Private Mortgage Insurance (PMI)
Credit Score Requirements
Debt-to-Income Ratio (DTI)
2025 Conventional Loan Limits
Income & Employment Requirements
Property Requirements
Closing Costs
Reserve Requirements
Loan Term Options
Down Payment Guidelines
It's possible for first-time home buyers to get a conventional mortgage with a down payment as low as 3%. But, the conventional loan down payment needed can vary based on your personal situation and the type of loan or property you're getting:
If you're not a first-time home buyer, or you make more than 80% of the median income in your area, the down payment needed is 5%.
When you buy a home that is not a single-family home, it is possible you will have to put down 15%. Lenders define a multi-unit home as having more than one unit.
If you're buying a second home, you'll need to put at least 10% down.
If you're getting an adjustable-rate mortgage (ARM), the lowest down payment is 5%.
Private Mortgage Insurance
If you put down less than 20% on a conventional loan, you'll need to pay for private mortgage insurance (PMI). PMI protects mortgage investors in case of a loan default. The cost for PMI varies based on your loan type, your credit score and the size of your down payment.
PMI is usually paid as part of your monthly mortgage payment. But, there are other ways to cover the cost as well. Some buyers pay it as an upfront fee included in their closing costs. Others pay it in the form of a slightly higher interest rate. Choosing how to pay for PMI is a matter of running the numbers. That way you can figure out what is the best for you.
The nice thing about PMI is that it won't be part of your loan forever. And you won't have to refinance to get rid of it. When you reach 20% equity, you can ask your lender to remove the PMI from your mortgage payments. Or, you can wait until you reach 22% equity in the home, and it will be removed automatically.
If you reach 20% equity because your home value goes up, you can contact your lender for a new appraisal. The lender will then use the new value to decide if it is still needed. Once you reach 22% equity in the home, your lender will automatically remove PMI from your loan.
Conventional Loan Strategies for Different Life Stages
Conventional loans can be optimized for various life situations. Here's how to leverage these versatile mortgage options throughout your homeownership journey:
First-Time Homebuyers
Leverage 3% down payment options and explore first-time homebuyer programs
- •Consider 30-year fixed-rate for lowest monthly payments
- •Explore down payment assistance programs
- •Budget for PMI until reaching 20% equity
Pro Tip: Many states offer additional first-time buyer incentives that can be combined with conventional loans
Move-Up Buyers
Use equity from your current home to make a larger down payment on your next property
- •Consider a 15-year or 20-year term to build equity faster
- •Aim for at least 20% down to avoid PMI
- •Consider selling before buying if in a competitive market
Pro Tip: Bridge loans can help you buy before selling your current home
Investment Property Buyers
Use conventional loans to finance properties with rental income potential
- •Expect higher down payment requirements (15-25%)
- •Higher interest rates than owner-occupied properties
- •More stringent credit and income requirements
Pro Tip: Some lenders allow you to count expected rental income toward qualification
Empty Nesters
Use equity to downsize efficiently and potentially eliminate mortgage payments
- •Consider 10-15 year terms to pay off before retirement
- •Evaluate cash-out options to supplement retirement
- •Consider single-story homes or properties with accessibility features
Pro Tip: Selling a larger family home can free up substantial equity for retirement
Conventional Loan Lifecycle Strategy
Years 1-2
Focus on making on-time payments and building credit history. Consider setting up automatic payments to avoid late fees.
Years 3-5
Evaluate refinance options if interest rates have dropped or your credit score has improved significantly.
Years 5-7
Consider home equity options if you've built substantial equity through appreciation and payments.
Years 7-10
Evaluate switching to a 15-year term if your income has increased, potentially saving thousands in interest.
Years 10+
Consider making additional principal payments to accelerate payoff and reduce total interest paid.
Every borrower's situation is unique. Contact our mortgage professionals for personalized conventional loan strategies tailored to your specific financial goals and circumstances.
Types Of Conventional Loans
Conventional loans offer versatility for diverse needs – the most popular mortgage choice in today's market.
Quick Comparison
| Type | Best For | Down | Rate | Score |
|---|---|---|---|---|
| Jumbo | High-value | 10-20% | Both | 700+ |
| ARM | Short-term | 3-5% | Adjustable | 620+ |
| Conforming | Standard | 3-20% | Both | 620+ |
| Fixed | Long-term | 3-20% | Fixed | 620+ |
| Portfolio | Unique | 10-30% | Both | 580+ |
| Renovation | Fixer | 5-20% | Both | 620+ |
Recent Updates (April 2025)
- •DTI requirements adjusted for high-balance loans
- •New first-time buyer PMI reduction programs
- •2026 conforming loan limit changes announced
Need Help Choosing?
Talk to SRK CAPITAL to find the best conventional loan for your situation. Try our calculator below to check your eligibility.
Jump to CalculatorConventional Mortgage Eligibility Calculator
Find out if you qualify in just a few simple steps
The information you provide helps us determine if you meet the income requirements for a conventional mortgage.
Conventional Loan Limits
For a conforming loan, your loan must fall within the loan limits set by Fannie Mae and Freddie Mac.
For 2025, the conforming loan limit for a single-family home is $806,500. But there are exceptions. Alaska, Hawaii and other high-cost areas of the country have higher loan limits, ranging up to $1,209,750. To see loan limits for your area, visit the Federal Housing Finance Agency website.
| Mortgage Type | Min. Credit Score | Min. Down | Highest DTI Ratio | Extra Costs |
|---|---|---|---|---|
| Conventional | 620 | 3% | 50% | PMI until 20% equity |
| VA Loans | 580 | 0% | Varies | 1.25% - 3.3% funding fee |
| FHA Loans | 500 | 3.5% (580+ score) 10% (500-579 score) | 50% (up to 57% in some cases) | 1.75% mortgage insurance premium |
| USDA Loans | 640 | 0% | 43% | 1% guarantee fee |
Conventional Loans vs VA LoansComparison
While conventional loans are available to anyone, Department of Veterans Affairs (VA) loans are only available to a select group. VA loans are a benefit of military service and only available to veterans, active-duty service members and their surviving spouses.
The requirements for VA loans are like other conventional loans, but VA loans come with a few extra benefits:
If you're thinking about getting a VA loan instead of a conventional loan, here are a few things to consider:
Conventional Loans vs FHA LoansComparison
Conventional loans have stricter credit requirements than FHA loans. They are backed by the Federal Housing Administration (FHA). They offer the ability to get approved with a credit score as low as 500 with a 10% down payment.
Credit scores above 580 only need a down payment of 3.5%. Conventional loans allow you to make a slightly smaller down payment of 3%, but you must have a credit score of at least 620 to qualify.
When you're deciding between a conventional loan versus an FHA loan, it's important to consider the cost of mortgage insurance:
Conventional Loans vs USDA LoansComparison
While conventional loans are available to use everywhere, United States Department of Agriculture (USDA) loans can only be used in certain areas.
Those who qualify for a USDA loan can find that it's a very affordable loan compared to other loan choices:
There's no income limit for conventional mortgages, but USDA loans have them. They vary based on the city and state where you're buying the home. When evaluating your eligibility for a USDA loan, your lender will consider the incomes of everyone in the household.
USDA loans don't ask borrowers to pay private mortgage insurance (PMI). But they do ask borrowers to pay a guarantee fee, which is like PMI. This fee helps continue the USDA loan program and operating costs.
Why Choose a Conventional Loan?Comparison
Conventional loans remain one of the most popular mortgage options for homebuyers. Here's why you might choose a conventional loan:
Flexible Property Options
Conventional loans can be used for primary residences, second homes, and investment properties with varying down payment requirements.
No Upfront Funding Fees
Unlike VA or FHA loans, conventional loans don't require an upfront funding fee or mortgage insurance premium.
Removable PMI
Private Mortgage Insurance can be removed once you reach 20% equity in your home, potentially saving you thousands over the life of your loan.
Competitive Interest Rates
With good credit, conventional loans often offer some of the most competitive interest rates available in the mortgage market.
FAQs About Conventional Loans
A conventional mortgage is any home loan not insured or guaranteed by the federal government. Unlike government-backed loans (FHA, VA, USDA), conventional loans are originated and serviced by private lenders such as banks, credit unions, and mortgage companies like SRK CAPITAL. They can be either conforming (meeting Fannie Mae and Freddie Mac guidelines) or non-conforming.
Most lenders require a minimum FICO score of 620 for conventional loans. However, borrowers with higher credit scores (740+) typically qualify for the best interest rates and terms. Your credit score is one of the most significant factors affecting the interest rate you'll be offered.
Conventional loans can be obtained with down payments as low as 3% for first-time homebuyers through programs like Fannie Mae's HomeReady or Freddie Mac's Home Possible. Standard conventional loans typically require at least 5% down, while 20% is needed to avoid private mortgage insurance (PMI). The size of your down payment affects both your interest rate and monthly payment.
Interest rates for conventional mortgages are primarily influenced by the 10-year Treasury yield, with lenders adding a spread of 1.5-3 percentage points. Your personal financial profile significantly impacts your offered rate, with factors including credit score, down payment size, loan term, debt-to-income ratio, and loan amount. As of May 2025, 30-year fixed rates average around 6.7-7%. There are many factors that decide what interest rate you will get. Beside your individual qualifications, the economy and the Fed also play a big part as well. Learn more from one of SRK CAPITAL's Founders, Sebastian Naranjo.
PMI protects the lender if you default on your loan and is typically required for conventional loans with less than 20% down payment. PMI costs between 0.3% and 1.5% of your loan amount annually ($75-$375 monthly on a $300,000 loan). You can remove PMI when your loan balance reaches 80% of the original home value (by request) or automatically when it reaches 78%. If your home has appreciated, you can request a new appraisal to demonstrate that your loan-to-value ratio has dropped below 80%.
Lenders generally prefer a maximum DTI ratio of 43%, though some may approve up to 50% for borrowers with strong compensating factors such as excellent credit scores and substantial cash reserves. DTI is calculated by dividing your total monthly debt payments by your gross monthly income. Lower DTI ratios typically result in better loan terms and higher approval chances.
Yes, you can qualify for down payment assistance with a conventional home loan. There are government agencies and community programs that offer assistance to buyers who are struggling with difficult financial situations. This type of assistance is available no matter what type of financing they're using. Ask your SRK CAPITAL loan officer about specific programs available in your area.
No, typically conventional loans are not assumable. An assumable mortgage is when a buyer takes over the seller's mortgage. Most government-backed mortgages are assumable like VA, FHA and USDA loans. This is one key difference between conventional and government-backed mortgage options.
Is a Conventional Loan Right for You?
Quick Assessment
Check if a conventional loan fits your needs.
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Expert Guidance
SRK CAPITAL helps you navigate conventional loans and find the best option for your situation.
Client Testimonials
We are first time home buyers, and working with Kai was such a great experience! He guided us through every step with clear communication and attention to detail, making us feel confident throughout the process.