A good fit if
- You have W-2 income or tax returns that show your full income
- Your credit is in good shape
- You want competitive pricing and flexible terms
Probably not if
- Your tax returns understate your income (see bank statement loans)
- Your loan is above the conforming limit (see jumbo)
- You already have 10 financed properties
How Conventional Loans Work
A conventional loan is a mortgage that isn't insured or guaranteed by a government agency. Most are "conforming," meaning they meet Fannie Mae and Freddie Mac guidelines and fall under the conforming loan limit. The FHFA sets that limit each year, and it's higher in high-cost areas like much of Los Angeles County. Loans above the limit are jumbo loans.
You qualify on documented income, typically pay stubs and W-2s, or two years of tax returns if you're self-employed, along with your credit, assets, and debt-to-income ratio. Conventional loans work for primary homes, second homes, and investment properties.
Conventional Loan Requirements
- Credit score: most lenders look for 620 or higher, and pricing improves at each step above that. See what credit score you need.
- Down payment: as little as 3% for eligible first-time buyers on a primary home under Fannie Mae and Freddie Mac programs. Second homes and investment properties require more. Read how much down payment you need.
- Debt-to-income: commonly up to 45%, and up to 50% with strong compensating factors through automated underwriting.
- Income: a stable, documented two-year history, with explanations for gaps or job changes.
- Reserves: sometimes none for a primary home, more for second homes, rentals, and borrowers with several financed properties.
- Credit events: waiting periods generally apply after a bankruptcy, foreclosure, or short sale.
A conventional loan is a Qualified Mortgage, so the income must be documented in the standard way. If your tax returns understate what you earn, a bank statement loan may fit better.
Private Mortgage Insurance (PMI)
If you put less than 20% down, you'll usually pay private mortgage insurance. Unlike FHA mortgage insurance, PMI on a conventional loan isn't permanent. You can ask to cancel it once your balance reaches 80% of the home's original value, and it ends automatically at 78% if you're current on payments. Pricing depends heavily on your credit score and down payment. Read what PMI is and how to remove it.
Conventional Loans for Investment Properties
Conventional financing is often the lowest-cost option for a rental if you can document enough income. Expect a larger down payment than on a primary home, more reserves, and a cap on the number of financed properties you can have. Rental income from a lease or the appraiser's rent schedule can help you qualify. If your returns show heavy write-offs or you've reached the property limit, compare a DSCR loan, which qualifies on the property's rent instead. See DSCR vs. conventional.
Example: a buyer purchases a $700,000 home with 10% down, a $630,000 loan. Because the down payment is under 20%, the loan includes PMI. Once the balance is paid down to $560,000 (80% of the original value), the borrower can ask the servicer to remove it. Figures are illustrative only.
How to Qualify for a Conventional Loan
- Check your credit and pay down revolving balances if your utilization is high.
- Gather two years of income history and make sure job changes are explained.
- Plan your down payment and closing costs, including any closing costs and reserves.
- Get pre-approved so sellers take your offer seriously. See pre-qualification vs. pre-approval.
- Compare options. I'll price conventional against FHA, and against Non-QM if your income is complex.
Documents You'll Need
- Pay stubs covering the last 30 days and W-2s for the last two years
- Two years of tax returns if you're self-employed or have rental or commission income
- Two months of bank and asset statements
- Photo ID and Social Security number
- Gift letter, if family is helping with the down payment
See the full mortgage document checklist.
Conventional vs. FHA Loans
| Conventional | FHA | |
|---|---|---|
| Typical credit | 620+ | Lower scores considered |
| Mortgage insurance | PMI, removable | Upfront and annual, often for the life of the loan |
| Occupancy | Primary, second home, investment | Primary residence only |
| Best for | Stronger credit | Credit still building or higher debt |
Conventional loans are often the better deal for borrowers with stronger credit, because the mortgage insurance is cheaper and removable. FHA loans can be easier to qualify for with lower scores or higher debt. I'll price both so you can compare.
Conventional Loan FAQ
What credit score do I need for a conventional loan?
Most lenders look for at least 620. Higher scores lower both your rate and your PMI cost, so even a small increase can help.
Can I use a conventional loan for a rental?
Yes. Conventional loans work for investment properties, with larger down payment and reserve requirements than a primary residence, and a limit on how many financed properties you can have.
What's the difference between conforming and conventional?
All conforming loans are conventional, but not all conventional loans are conforming. Loans above the conforming limit are jumbo loans.
Are there first-time buyer programs?
Yes. Fannie Mae and Freddie Mac both offer low down payment programs for eligible buyers, and some have income limits. Ask me which you may qualify for.
Can I get a conventional loan if I'm self-employed?
Yes, usually with two years of personal and business tax returns. If write-offs lower your taxable income, a bank statement or P&L loan may qualify you for more.
When does PMI go away?
You can request removal when your balance reaches 80% of the original value, and it ends automatically at 78% if your payments are current.
Available for properties in California. Not all applicants will qualify. Loan approval and terms depend on credit, income, assets, property, and current agency and lender guidelines. Not a commitment to lend.