Conventional Loans

A conventional loan is a mortgage that is not insured or guaranteed by the federal government. It conforms to the guidelines set by Fannie Mae and Freddie Mac, the two government-sponsored enterprises that buy most home loans in the U.S. Because there is no government insurance, lenders rely more heavily on your creditworthiness, which is why conventional loans typically require higher credit scores than FHA loans. However, they offer advantages like removable mortgage insurance, more property types, and often lower overall costs for well-qualified borrowers.

The minimum down payment for a conventional loan is 3% for first-time home buyers through programs like Fannie Mae HomeReady or Freddie Mac Home Possible. Non-first-time buyers typically need at least 5% down. Putting 20% or more down eliminates the need for private mortgage insurance (PMI), which can save you $100-$300 per month on a typical loan. Investment properties generally require 15-25% down. The more you put down, the lower your monthly payment and the better your interest rate will be.

You can request PMI removal once your loan balance reaches 80% of the original purchase price. Your lender is required by law to automatically cancel PMI when your balance drops to 78% of the original value. You can also request early removal based on a new appraisal showing your home has appreciated enough to give you 20% equity. This is a major advantage over FHA loans, where mortgage insurance typically lasts the life of the loan. Removing PMI can save you thousands of dollars over the remaining term of your mortgage.

Conforming loans meet the guidelines set by Fannie Mae and Freddie Mac, including the loan limit of $766,550 for 2026 in most areas (higher in designated high-cost markets). Because these loans can be sold to Fannie and Freddie, they typically carry lower interest rates. Non-conforming loans, also called jumbo loans, exceed these limits or do not meet other guideline requirements. Jumbo loans generally have stricter credit requirements, larger down payments, and slightly higher rates.

Yes, conventional loans are one of the best options for purchasing investment properties. You will need a larger down payment, typically 15% for a single-unit rental and 25% for multi-unit properties (2-4 units). Interest rates are usually 0.25% to 0.75% higher than primary residence rates. You will also need a higher credit score, usually 680 or above, and cash reserves equal to several months of mortgage payments. FHA and VA loans do not allow investment property purchases, making conventional financing the go-to choice for real estate investors.