Loading
Conventional Loans
Understanding Key Features & Benefits
Updated: February 2026
Reviewed: February 2026 by Sebastian Naranjo, NMLS #2313958
Conventional Home Financing Made Simple
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.
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, these loans offer distinct advantages over government-backed FHA, VA, and USDA loans.
Competitive interest rates with good credit
Competitive interest rates with good credit
Down payments as low as 3% for first-time buyers
Down payments as low as 3% for first-time buyers
Removable mortgage insurance (unlike FHA loans)
Removable mortgage insurance (unlike FHA loans)
Flexible property options (primary, second homes, investments)
Flexible property options (primary, second homes, investment...
Ready to Get Started?
Explore your conventional loan options with our experts.
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
Get Your Conventional Loan Rates
Enter your details below to see personalized rates
Loan Details
LTV: 80.0% | Down: $100,000
Rates are actual rates based on current market conditions. Rates are subject to change without notice. Your actual rate may vary based on your credit profile and qualifications. SRK CAPITAL AI can make mistakes. Rates provided by SRK CAPITAL AI should not be considered a commitment to lend.
Conventional loans with a Loan-to-Value (LTV) ratio greater than 80% require Private Mortgage Insurance (PMI). PMI can be automatically removed once the LTV reaches 78%, or upon request at 80% LTV with a good payment history.
For complete mortgage disclosure information, please refer to our Terms of Service, Privacy Policy, and for SRK CAPITAL AI disclosure information, please refer to our AI Policy.
How Conventional Loans Work & Requirements
Understand the complete conventional loan process, from application to closing, along with all the requirements you'll need to meet for approval.
Understanding the Conventional Loan Process
Conventional loans are mortgages not insured or guaranteed by the federal government. Unlike government-backed loans (FHA, VA, USDA), these loans are originated and serviced by private lenders like banks, credit unions, and mortgage companies such as SRK CAPITAL.
These loans are typically sold to Fannie Mae or Freddie Mac, government-sponsored enterprises that provide liquidity to the mortgage market. This standardization helps maintain competitive rates and consistent qualification standards.
Conventional loans offer flexibility in terms, down payment options, and property types. They can be either conforming (meeting Fannie Mae and Freddie Mac guidelines) or non-conforming (jumbo loans exceeding conforming limits).
The Loan Process Timeline
1
Application
You apply to a lender like SRK CAPITAL for a specific loan amount based on your home price and down payment.
2
Qualification Review
Our team evaluates your creditworthiness, income stability, debt-to-income ratio, and other financial factors.
3
Approval
Upon meeting the requirements, your loan is approved with specific terms based on your financial profile.
4
Closing
You complete the purchase of your new home, signing all necessary documentation.
5
Repayment
You repay the loan through regular monthly installments over your chosen term (typically 15 or 30 years).
Loan Terms
Fixed-rate options from 10 to 30 years, or adjustable-rate mortgages (ARMs)
Down Payment
As low as 3% for qualified buyers, with 20% eliminating PMI requirements
Property Types
Primary residences, second homes, and investment properties all qualify
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.
2
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.
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 properties | 10-20% | Both | 700+ |
| ARM | Short-term homeowners | 3-5% | Adjustable | 620+ |
| Conforming | Standard home | 3-20% | Both | 620+ |
| Fixed-Rate | Long-term homeowners | 3-20% | Fixed | 620+ |
| Portfolio | Unique situations | 10-30% | Both | 580-700+ |
| Renovation | Fixer-uppers | 5-20% | Both | 620+ |
Recent Updates (February 2026)
- •2026 conforming loan limits increased to $833,750 for single-family homes in standard markets
- •Fannie Mae expanded HomeReady program with enhanced down payment assistance options
- •New credit score flexibility for borrowers with strong compensating factors and reserves
- •Updated PMI cancellation guidelines streamline the removal process at 80% LTV
Need Help Choosing?
Talk to SRK CAPITAL to find the best conventional loan for your situation.
Schedule a ConsultationConventional Loans Analysis Center
Conventional Loans vs VA Loans
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:
First, VA loans don't need a down payment
Second, VA loans never ask you to pay mortgage insurance
If you're thinking about getting a VA loan instead of a conventional loan, here are a few things to consider:
You can't use a VA loan to buy a second home or investment property. VA loans require that you occupy the home they purchased with a VA loan.
Second homes and vacation homes are not allowed through VA loans.
You also have to pay a funding fee. The VA funding fee offsets the cost to taxpayers of getting the VA loan. The funding fee ranges from 1.25% - 3.3% of the loan amount.
FAQs About Conventional Loans
Get answers to the most common questions about conventional mortgages
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.
What's your current credit score range?
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.
— R. Johnson, First-time Homebuyer
Financial Disclosure
The information provided on this page is for educational purposes only and does not constitute financial, legal, or tax advice. Mortgage rates and terms are subject to change and may vary based on your individual financial situation. Please consult with a licensed mortgage professional at SRK CAPITAL for personalized guidance.
Explore Other Loan Options
Not sure if Conventional Loan is right for you? Compare with these alternatives.
FHA Loan
Government-backed loans with lower down payment requirements
- 3.5% down payment
- Lower credit requirements
- Gift funds allowed
VA Loan
Exclusive benefits for veterans and active military
- 0% down payment
- No PMI
- Competitive rates