Conventional loans
Conventional loans, and why the PMI matters more than the down payment.
A conventional loan is any mortgage not insured by a government agency. In practice that means a loan written to Fannie Mae or Freddie Mac guidelines, which is where most buyers in Charlotte and upstate South Carolina end up. It is the program I quote first and then argue against if the file says otherwise.
The part people get wrong is the down payment. Conventional financing starts at 3% down for a qualifying first-time buyer and 5% for everyone else. The 20% figure is not a requirement — it is the point where private mortgage insurance stops. That distinction is worth real money over the life of the loan, and it is the strongest argument for conventional over FHA when your credit supports it.
Updated
Conventional at a glance
- Minimum down
- 3% (first-time), 5% otherwise
- Credit score, typical floor
- 620
- Mortgage insurance
- PMI, removable at 20% equity
- 2026 conforming limit
- $832,750 (one unit)
- Occupancy
- Primary, second home or investment
- Gift funds
- Allowed from eligible donors
Right for you if
- Credit around 680 and up, where PMI pricing gets genuinely cheap
- Buyers who plan to be in the house long enough to hit 20% equity
- Anyone buying a second home or a rental — FHA, VA and USDA will not do it
- Condos and properties that would fail FHA condition or approval standards
- Buyers putting 20% down who want no mortgage insurance at all
Know before you commit
- PMI pricing is credit-score sensitive; below about 660 FHA is often cheaper
- Debt-to-income tolerance is tighter than FHA on a thin file
- The 3% down option has income limits on some products and first-time-buyer conditions on others
- Above $832,750 you are in jumbo territory, with different rules
What "conventional" actually means
There is no government insurance behind a conventional loan. Instead the loan is underwritten to Fannie Mae or Freddie Mac guidelines so it can be sold into the secondary market, which is what keeps the rate competitive. The guidelines are public, automated underwriting reads them, and a well-documented file gets an answer in minutes rather than weeks.
Because there is no agency insurance, the lender protects itself a different way: private mortgage insurance on anything above 80% loan-to-value. PMI is a monthly premium priced off your credit score, your loan-to-value and the term. It is the single biggest variable between two otherwise identical conventional quotes.
Down payment options, honestly compared
| Down payment | Who it is for | What changes |
|---|---|---|
| 3% | Qualifying first-time buyers | Highest PMI tier; some products cap income by area |
| 5% | Any owner-occupant | Standard entry point, no first-time requirement |
| 10% | Buyers with more cash or a tighter file | PMI drops a tier; easier approval on a marginal DTI |
| 15% | Buyers optimizing cost | PMI cheaper again; 20% equity arrives fast |
| 20% | Buyers avoiding PMI entirely | No mortgage insurance from day one |
| 25% | Investment property, typical | Required on most single-family rentals |
Guideline minimums for a one-unit primary residence. Some 3% products carry income limits or a first-time-buyer requirement; which one fits depends on your file.
How PMI comes off — and it does come off
This is the mechanism that makes conventional financing worth planning around. Once your loan balance reaches 80% of the original value, you can request PMI removal in writing. At 78% the servicer must drop it automatically. And if the house has appreciated, a new appraisal can get you there years earlier than the amortization schedule would.
- Request removal at 80% loan-to-value based on the original value
- Automatic termination at 78% under the Homeowners Protection Act
- A new appraisal showing appreciation can accelerate both
- Payment history has to be clean, and a second lien can complicate it
Conventional versus FHA, in one paragraph
If your score is comfortably above 660 and your debt-to-income is not stretched, conventional almost always wins on total cost because the mortgage insurance ends. If your score is in the 580 to 640 range, or your DTI is high, or the property needs a more forgiving underwrite, FHA is frequently the loan that gets you in the house — and you refinance out of it later. Neither answer is universal, which is why I run both.
What underwriting is actually looking at
- Credit: score, but more importantly the last 24 months of payment history
- Income: two years of history, documented, with any variable income averaged
- Assets: enough for down payment, closing costs and any required reserves, sourced and seasoned
- The property: an appraisal supporting the price and, on a condo, a project review
- Debt-to-income: the total of your monthly obligations against gross monthly income
Gift funds are allowed on a conventional purchase from a relative or other eligible donor, with a signed gift letter and a paper trail. On a 5%-down primary residence the entire down payment can be a gift.
In their words
Clients who used conventional
Travis and his team are just absolutely wonderful. We just closed on our new house and he was with us every step of the way. This is the 4th time we have used him as our lender over the years and he never disappoints. He is consistent with his knowledge but does it in a way that you feel like you are old friends with him. I tell everyone I know looking to buy a home to call him. I honestly know they will get the same amazing care my husband and I receive by working with him. Can’t say enough good things about him…. If you are looking to buy I highly suggest you reach out to him and his team!
I absolutely recommend Travis for any prospective buyer! As a first time homebuyer, I was really nervous and unsure about the process, but Travis was super helpful every step of the way. He took the extra time to explain everything to me and was always quick to respond to any questions or concerns I had which I really appreciated. Travis made this experience so much less stressful, I felt like I could relax a little since I knew I could count on him. Additionally, he was always a delight to talk to and by the end he was just as excited as me to close on my house, haha. I highly recommend his services especially for any first time homebuyers looking for a supportive and knowledgeable lender!
Questions
Conventional, answered
No. Conventional financing starts at 3% down for a qualifying first-time buyer and 5% for everyone else. Twenty percent removes private mortgage insurance — it has never been a requirement to qualify.
Most conventional programs start around 620, but the score does more than open the door: PMI pricing and rate both improve materially as the score rises. The difference between a 660 and a 740 on the same loan is real money every month.
You can request removal once the balance reaches 80% of the original value, and the servicer must terminate it automatically at 78%. If the property has appreciated, a new appraisal can get you to 80% well before the amortization schedule does.
The baseline conforming limit for a one-unit property is $832,750 for 2026, set by the Federal Housing Finance Agency. Above that you are looking at a jumbo loan, which has its own guidelines.
Yes, and it is usually the only option — FHA, VA and USDA all require you to occupy the home. Expect 15% down on a single-family rental at a minimum, more commonly 20% to 25%, plus reserves.
More in the full mortgage FAQ, or ask me directly.
This is not an offer to enter into an agreement or a commitment to lend. Not all applicants will qualify. Information and rates are subject to change without notice. All loans are subject to credit review and approval. Program guidelines, fees and loan limits are set by the applicable agency or investor and are subject to change. Fairway Home Mortgage is a division of Fairway Independent Mortgage Corporation. NMLS Entity ID #2289.
Next step
Find out what you qualify for before you shop.
A documented pre-approval takes about 24 hours once your paperwork is in, costs nothing, and tells you whether conventional is genuinely your best route.