Conventional Purchase Loan: For Borrowers with High Standards

It’s simple: if you have a higher credit score, a conventional purchase loan is a great choice for financing your home. A strong credit history opens up options for your down payment amount, closing costs, and monthly payments. With a lower credit score though, you may need to meet higher minimum requirements to pre-qualify for these benefits.

I'd like to purchase

I'd like to refinance

How to Get a Conventional Loan

Borrowers often start by requesting a quote for their interest rate or beginning an application with a lender. We’ll go over your credit report, and we’ll talk about your finances and terms you likely pre-qualify for. Then we’ll figure out the potential value of the house you’re interested in purchasing with an appraisal.

Talk only gets us so far, so be prepared for paperwork. We will request documentation for the underwriting process to make sure the loan begins on a solid foundation.

We’re with you through each step, all the way to closing.

Conventional Loan Requirements

These are some of the common requirements often needed to pre-qualify for a conventional purchase loan. If you have questions about these requirements, we’re here to help.

In most cases it’s best to have a credit score of 620 or higher. With higher credit scores comes better interest rates.
In the underwriting phase, you’ll need documentation of consistent income with a Debt-to-Income ratio at or below 50%. This ratio shows how much of your monthly income goes to paying your current debt.
Along with income information you need to share employment verification and history.
First-time borrowers need a down payment of 3% or more. This minimum requirement goes up based on your income, if it’s a second home purchase, and other factors.
A down payment less than 20% requires paying Private Mortgage Insurance (PMI) premiums until you’ve paid 20% equity into the home, meaning you reach a Loan-to-Value ratio of 80%.

Conventional Loan FAQs

Financing a home is an important investment. It’s ok to have questions. We’ve compiled answers to the frequently asked ones, but don’t hesitate to ask more.

What is the difference between a conventional loan and an FHA loan?

Both conventional and FHA loans offer flexible financing options. However, a conventional loan often has stricter qualification requirements. The benefit, if you pre-qualify, is that you also get better options when it comes to your mortgage insurance, term lengths, and closing costs, as well as a lower interest rate.

FHA loans are insured by the government, so lenders don’t need you to meet the same strict requirements. If you have a lower credit score, an FHA loan may be the most affordable loan for you. Although it may provide fewer options than a conventional loan, it does provide competitive interest rates and low down payment options.

How much do I need for a down payment?

You’ll want to consider how much you’ve been able to save for a down payment, the value of the house you want to buy, as well as how the down payment amount impacts your potential mortgage.

Typical required down payment amounts for conventional loans range from 3% of the value of the house for first-time borrowers, up to the recommended 20% to eliminate Private Mortgage Insurance (PMI) premiums. Depending on your current finances and your homebuying situation, many factors are used to determine your minimum down payment amount.

What is Private Mortgage Insurance?

Private Mortgage Insurance or PMI is an insurance premium that protects the lender’s investment in your home purchase. Once you own 20% equity in your home, it’s no longer required. So with a down payment of 20%, you can eliminate paying PMI altogether. This option, and the fact that you can stop paying PMI once you reach a Loan-to-Value ratio of 80% is one of the unique advantages of a conventional loan.

FHA loans, on the other hand, require mortgage insurance to be paid over the entire length of the loan or many years into paying your loan.

What are loan limits?

Loan limits are standard for conventional loans. The limits for a conventional loan require that the house you’re purchasing fits within the range of a designated value. If it goes above or below these limits, you may need to seek other financing options.

Loan limit requirements also differ in certain states and high-cost locations. They’re set each year by Fannie Mae and Freddie Mac, and the current maximum limit is upwards of $600,000.

What closing costs will I need to pay?

When you close your conventional loan to purchase a house, you’ll need to account for several costs, When you close your conventional loan to purchase a house, you’ll need to account for several costs, both upfront and those included in your ongoing monthly payment. These will be clearly outlined as your loan is processed and before you close.

Beyond your initial down payment, you’ll also pay closing costs, which cover expenses such as loan origination fees, an appraisal, title insurance, etc. These typically range from 2-4% of your total loan amount.

Conventional Loan Benefits

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Most common purchase loan

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Flexible requirements

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Down payment as low as 3%

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Term length options

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Fixed or adjustable interest rate

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Rates are lower if credit is higher

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No mortgage insurance after 20% equity

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