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Conventional Loans

What are Conventional Loans?

Conventional Loans are mortgage loans that are not insured by the government (like FHA, VA and USDA Loans are), but instead meet the lending guidelines set by Fannie Mae or Freddie Mac, which are "government sponsored", private entities. In many cases, conventional loans have better rates, terms and/or lower fees than other types of mortgages. However, conventional loans normally require a borrower to have good-to-excellent credit and credit scores, reasonable amounts of monthly debt obligations, a down payment of 3-20% and reliable monthly income. Conventional loans are ideal for borrowers with excellent credit and at least a 5% down payment. There are also several favorable options available to first-time homebuyers and/or low-to-moderate income buyers with down payments as low as 3%. In many cases, part or all of the down payment is allowed to come from a gift from an eligible donor.

Conventional LoansMost Common Types of Conventional Loans

Fixed Rate Mortgages: Your rate and payment never change.

  • 30 Year Fixed Loan
    Benefits: Lowest fixed monthly payments
  • 20 Year Fixed Loan
    Benefits: Low fixed monthly payments
  • 15 Year Fixed Loan
    Benefits: Lower rate than the 30 or 20 Year Fixed Loans; Pay less interest and pay your home off more quickly.
  • 10 Year Fixed Loan
    Benefits: Lower rate; Pay off your loan and build equity faster.
  • 5 Year Fixed Loan
    Benefits: Lowest rate; Pay off your loan and build equity the fastest

Adjustable Rate Mortgages: After the "initial fixed rate period", your interest rate is subject to change once a year.

  • 5/1 ARM
    Fixed Rate for 5 Years, Adjustable Rate for the remaining 25 years
  • 7/1 ARM
    Fixed Rate for 7 Years, Adjustable Rate for the remaining 23 years
  • 10/1 ARM
    Fixed Rate for 10 Years, Adjustable Rate for the remaining 20 years

What are the Conventional Down Payment Requirements?

For Purchase transactions Conventional Loans require the home-buyer to put down at least 3% - 20% of the purchase price of the home. For a Refinance transaction, most lenders require at least 5% equity in the property, although 3% is possible under certain circumstances. If you don't have enough equity to qualify for a conventional refinance - even if you owe more than your home is worth - you might be eligible for a HARP 2.0 Loan.

What types of property are eligible?

Most conventional loan programs allow you to purchase single-family homes, eligilbe condominiums, planned unit developments (PUD's), and 2-4 family residences (duplexes, triplexes and fourplexes). A conventional loan can be used to finance a primary residence, second home or investment property.

Find Out if a Conventional Loan is Right for You

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