A conventional loan is a mortgage that is not insured or guaranteed by a federal agency such as the FHA, VA or USDA. It is the most common type of home loan in the United States and is funded by private lenders following guidelines set by Fannie Mae and Freddie Mac.
Who conventional loans suit
- Buyers with established credit and a steady, documented income.
- Buyers who can put down 3% to 20% or more. With 20% down there is no mortgage insurance.
- Homeowners refinancing out of an FHA loan to drop mortgage insurance once they have enough equity.
- Buyers of second homes and investment properties, which government programs generally do not cover.
Conforming and non-conforming
A conventional loan within the loan limits published each year by the Federal Housing Finance Agency is called conforming. Los Angeles County is a high-cost area, so its limit is higher than the national baseline. Loans above the limit are jumbo or non-conforming loans with their own guidelines.
Fixed or adjustable
Conventional loans come as fixed-rate loans, where the payment never changes, and as adjustable-rate loans, where the rate is fixed for an initial period and then adjusts. We will show you both on the same scenario so you can compare the real monthly difference.
Private mortgage insurance
With less than 20% down, the lender will require private mortgage insurance (PMI). Unlike FHA mortgage insurance, conventional PMI can be cancelled once your balance reaches 80% of the home's value, and it drops off automatically at 78%.
What you will need
Pay stubs, two years of W-2s or tax returns, bank statements and identification. Our documents checklist has the full list. All loans are subject to credit approval, appraisal and lender underwriting.