What is a conforming loan?

Nice two story houseThe usual explanation for a conventional mortgage (also called a conforming mortgage) is a home loan that is not government insured or guaranteed. The FHA, Veteran, and USDA mortgages are all backed (insured) by the Federal government. The alphabet loans (FHA, VA & USDA) require a substantial upfront mortgage insurance premium and monthly mortgage insurance (mip). The conventional loan does not require any upfront mortgage insurance and does not require monthly mortgage insurance if the down payment is 20% or greater.

The conventional loan meets the guidelines of either the Federal Home Loan Mortgage Corporation (Freddie Mac) or the Federal National Mortgage Corporation (Fannie Mae). Think of the conventional mortgage as your father and grandfather's mortgage. The down payments are usually five, ten, 15 or 20 percent; or greater. A down payment of less than 20% requires private mortgage insurance.

2018 Conforming Loan Limits

Common Lending Limits For Most US Counties - there are some county exceptions.
Loans above the following limits are called jumbo loans

  • 1-unit home - $453,100
  • 2-units (duplex) - $580,150
  • 3-units - $701,250
  • 4-units - $871,450


Effective 12/13/2014 qualified applicant(s) can obtain a mortgage with only 3% down. The applicant or in the case of multiple applicants (i.e. husband/wife, partner/partner), one applicant must be a first time home buyer. The Conventional 97 program may only be used for single-family dwellings. This includes single-family attached homes, single-family detached homes, townhomes, co-ops , condominiums, and row homes. The maximum loan size is limited to 417,000. No investors - owner occupied residences only. Adjustable interest rate loans are not permitted, fixed rate only. A higher credit score maybe required if the borrower(s) is receiving gift money for the down payment. Read more

Why should I get a conventional/conforming mortgage?

1. No Upfront Mortgage Insurance:

Conventional home loans do not require an initial (upfront) mortgage insurance payment. The FHA, VA, and USDA loan programs all require an upfront premium. The "funding fee", as it is called, is usually financed with/into the loan. It should be noted that service related 10% disabled veterans are exempt from the VA funding fee.

Since conventional home loans do not require the upfront mortgage insurance, the loan amount is lower and consequently, the monthly payment is a bit lower.

2. No Monthly Mortgage Insurance:

Smiling familyThe FHA and USDA loan programs require a monthly mortgage insurance payment. The monthly mortgage insurance never goes away . . . even with a 20% down payment or equivalent equity. Conventional home loans do not require mortgage insurance with a 20% down payment. Conventional loans do require monthly mortgage insurance with less than twenty percent down payment; however, after paying down the mortgage by 22%, the lender is required to remove the monthly pmi payment. See below

3. Investor Loan:

The FHA, VA, and USDA loan programs prohibit investors. The conventional mortgage does accept investors. Currently, the down payment for a single family investment home is 15%. Two to four unit investment properties require a 25% down payment.

4. Second Home Loan:

The FHA, VA and USDA loan programs do not permit second home financing, however, you can obtain a mortgage for a second home with a conventional mortgage. The second home mortgage usually requires a 10% minimum down payment.

5. Higher Loan Amount:

Congress establishes the maximum loan limits for FHA, VA, USDA and conventional loan programs. The conventional loan limits are usually higher than the FHA program. There is no loan limit with the VA or USDA mortgage.

Requirements for a conventional loan

► Are conventional loan rates higher than FHA?

It depends. Interest rates are based on market activity (bond market), the down payment, credit score, type of property (i.e. single family versus multi-occupancy), and loan amount. On some days, the FHA rate may be lower or higher than the conventional loan.

► Are VA loan rates higher than conventional?

The VA interest rates are also affected by the same conditions as above. The Veteran's Administration does not set the mortgage interest rates. Lenders determine the interest rates.

► Can a VA appraisal be used for a conventional loan?

No, but. The VA appraisal and a conventional loan appraisal should arrive at the same market value, however, the lender will require that the VA appraisal be reformatted to the conventional appraisal form. There are some clerical differences. 

► Can closing costs be added to conventional loan?

No. Closing costs must be paid separately on a conventional loan.

► Can I buy a condo with a conventional loan?

Yes, provided you and the condo qualify. Conventional loans are a little less restrictive than the government loans and are an excellent way to finance a condominium.

► Can I change my FHA loan to a conventional loan?

If your loan is currently an FHA mortgage, you will have to refinance out of the FHA mortgage to a conventional mortgage. If your mortgage application is in process as an FHA loan and you want to change the application to a conventional mortgage, the lender may ask you to sign a new set of loan papers for a conventional loan.

► Can I get a conventional loan with 10% down?

Conventional loans are available with a 10% down payment.

► Can I get a conventional loan with a 620 credit score?

Most lenders will allow a 620 credit score, and some may go even lower.

► Can the seller pay the down payment on a conventional loan?


► Can you buy a condo with a conventional loan?

Condominiums are allowed with conventional loans. The condo must meet the conventional appraisal guidelines.

► Can you pay pmi upfront on a conventional loan?

Yes. The private mortgage insurance companies offer a single payment that can be paid at closing/settlement or financed in the mortgage.

► Can you roll closing costs into a conventional home loan?


► Do I have to pay mortgage insurance on a conventional loan?

You will have to pay mortgage insurance, if the down payment is less than 20%. There is no upfront mortgage insurance with conventional loans.

► Do you have to have 20 percent down for a conventional loan?

No. The minimum down payment is 5%

► Do you need an appraisal with a conventional loan?

Yes. The lender requires an appraisal to determine condition and value. The lender needs to know that the value of the house exceeds the amount of the loan.

► How is an FHA loan different from a conventional loan?

The FHA loan and the conventional loans are very different. The FHA loan has upfront mortgage insurance, the conventional loan does not have upfront mortgage insurance. The FHA down payment is on 3.5% and the conventional loan requires a 5% down payment. Take a look at the FHA mortgage page.

► How long do I have to pay mortgage insurance on conventional loan?

By Federal law, private mortgage insurance (pmi) must be removed by the lender when there is 22 percent equity in the home based on the original property value, provided that the monthly mortgage payments are current. You may request cancellation from the lender after there is 20 percent equity and the mortgage payments are current. There are certain exceptions.

► How much do I have to put down on a conventional loan?

Conventional home loans require a minimum down payment of 5%.

► How much is jumbo conforming loan?

Congress establishes the maximum conventional loan limit each year. Some high cost US counties have a higher loan limit. Currently the typical loan limit for a single family home is $417,000. Conventional loan limits are higher for two, three and four unit residences. Read more

► Is a conventional loan a fixed rate loan?

Conventional loans are available as fixed rate, adjustable or hybrid, which is a loan that is fixed for a number of years and then converts to a one year adjustable rate mortgage.

► Is a conventional loan a government loan?

No. Conventional loans are underwritten to the lending guidelines of the Federal National Mortgage Association and Federal Home Loan Mortgage Corporation. The companies are not government agencies. Fannie and Freddie are for profit private corporations. These companies purchase the mortgages from banks and mortgage companies and in turn earn the interest paid on the mortgages.

► Is a termite inspection required for a conventional loan?

Termite inspections are not required with conventional loans, however, the lender can require a termite inspection.

► Is my loan FHA or conventional?

Look through your loan documents. Search for the long settlement statement. The settlement statement itemizes all of the costs. You will find the type of loan at the top of the document.

► What credit score do I need for a conventional home loan?

The minimum credit score requirement varies from lender to lender, but most lenders will require a 620 minimum credit score for conventional loans.

► What is a non conforming conventional loan?

Conventional loans are based on the lending guidelines of Fannie Mae and Freddie Mac. If a loan meets the guidelines, the loan is said to "conform" to the lending guidelines. When a loan is non conforming, the loan does meet at least one guideline. In most cases, the loan exceeds the statutory loan limit.

► Who pays closing costs on a conventional loan?

The buyer is expected to pay the closing costs. The seller is permitted to pay a percentage of the buyer's closing costs based on the down payment percentage.
See Seller Assist