Conventional loans
Conventional loans, minus the jargon.
The most common mortgage in America. Here's when it beats FHA, how private mortgage insurance comes off, and what lenders look at.
What is a conventional loan?
A conventional loan is a mortgage that isn't insured or guaranteed by a government agency like FHA, VA, or USDA. Most conventional loans follow Fannie Mae or Freddie Mac guidelines. They're the most common loan type in the country and work for primary homes, second homes, and investment properties.
When does conventional beat FHA?
Conventional often costs less for borrowers with strong credit, especially with a larger down payment. Its private mortgage insurance is priced by credit score and can be removed later, while FHA's premiums work differently. If your credit is good, ask for both Loan Estimates and compare page 3's In 5 Years line.
How does private mortgage insurance (PMI) come off?
On most conventional loans, you can ask to cancel PMI once you've paid your balance down far enough compared to the home's original value, and it ends automatically a little later if you're current. That's federal law under the Homeowners Protection Act. Some lenders also allow removal based on a new appraisal after the home gains value.
Source: CFPB: When can I remove PMI?
What do I need to qualify?
Lenders look at your credit, income, debts, assets, and the property. Conventional loans usually want steadier credit than FHA, documented income, and enough savings for closing. The automated underwriting system weighs everything together, so one weak spot doesn't always sink a file. A short conversation tells you where you stand.
Conventional refinances
You can refinance into a conventional loan to change your rate or term, remove FHA mortgage insurance, or take cash out. In Texas, a cash-out on your homestead must follow Section 50(a)(6). Before you refinance, figure out your break-even point so you know how long it takes the savings to cover the costs.
Run it: refinance break-even · Read: Texas cash-out rules
For illustration only. Not a commitment to lend, a Loan Estimate, or an offer of credit. Your actual figures depend on your full application, credit approval, property, and the loan program. John Stafford NMLS #2470539 | GoRascalJohn powered by GoRascal Inc. NMLS #2072896. Equal Housing Opportunity.
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Common questions
Is conventional the same as a fixed-rate loan?
No. Conventional describes who backs the loan. Fixed or adjustable describes how the rate behaves. Conventional loans can be fixed or adjustable.
Can I use a conventional loan for a rental?
Yes, conventional loans can finance investment properties, usually with stricter requirements than a home you live in. Investors can also look at DSCR loans.
Do I need a big down payment for a conventional loan?
Not necessarily. A smaller down payment usually means paying private mortgage insurance, which can be removed later. Waiting to save a bigger down payment isn't always the best move; compare options.
What's the difference between PMI and FHA MIP?
PMI is private mortgage insurance on conventional loans and can be canceled under federal rules. MIP is FHA's mortgage insurance and follows HUD's rules.
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