Conventional Loans

The Basics

What Is a Conventional Loan?

A conventional loan is a mortgage that isn't insured or guaranteed by a government agency — no FHA, no VA, no USDA. Instead, these loans follow guidelines set by Fannie Mae and Freddie Mac, the government-sponsored enterprises that buy most American mortgages on the secondary market. When a loan meets their standards, it's called a "conforming" loan, which is why you'll hear the two terms used almost interchangeably.

Conventional loans are the default choice for borrowers with solid credit and stable finances, and they finance the majority of U.S. home purchases. They offer the widest range of options in lending: 3% down programs for first-time buyers, 20%-down loans with no mortgage insurance at all, second homes, investment properties, fixed rates, adjustable rates, 30-year terms, 15-year terms. If a government program is a specialized tool, conventional is the whole toolbox.

The trade-off: conventional underwriting is less forgiving than FHA. Credit scores matter more, debt ratios are tighter, and the documentation standards are stricter. But for borrowers who clear those bars, conventional usually delivers the lowest total cost of any loan type.

2026 Conforming Loan Limit: $832,750

To count as "conforming" in 2026, a single-unit loan must be at or below $832,750 in most areas of the country. (Designated high-cost counties — parts of coastal California, the D.C. area, New York, and a few others — get higher limits.) Loans above the conforming limit are jumbo loans, which carry different requirements: bigger down payments, higher credit standards, and larger cash reserves.

For buyers in our six states — Utah, Colorado, Florida, Idaho, Georgia, Wyoming — the $832,750 limit covers the overwhelming majority of purchases. Even in pricier pockets like Denver's suburbs or Salt Lake's east side, most buyers stay conforming. Multi-unit limits run higher: roughly $1,066,900 for duplexes and scaling up for 3-4 units.

Down Payment Options: From 3% to 20%+

The old "you need 20% down" rule is a myth. Here's what conventional actually offers:

3% down: Conventional 97 and the HomeReady/Home Possible programs allow just 3% down — $13,500 on a $450,000 home. HomeReady and Home Possible add income limits (generally 80% of area median income) but offer reduced PMI pricing and allow non-borrower household income to count. These are genuinely excellent first-time buyer programs that too many lenders never mention.

5-10% down: The standard low-down conventional range. PMI applies, but at these down payments with decent credit, PMI is often cheaper than FHA's MIP — and it's removable.

20% down: The magic number — no PMI at all, best pricing tier, simplest underwriting. On a $450,000 home that's $90,000 down, which is out of reach for many first-time buyers but common for move-up buyers rolling equity from a prior sale.

Gift funds: Conventional allows gift funds for down payments, though the rules are stricter than FHA — with less than 20% down, lenders typically want to see some of your own funds in the transaction too. We'll map out exactly what your file needs during pre-approval.

PMI: What It Costs and How to Remove It

Private mortgage insurance (PMI) applies when you put down less than 20% on a conventional loan. Unlike FHA's flat MIP, PMI is priced to your credit score — and the range is enormous. A borrower with a 760 score might pay 0.3% annually; a borrower at 620 might pay over 1%. On a $450,000 loan, that's the difference between roughly $110/month and $400+/month for the exact same insurance.

This credit sensitivity is the single most important thing to understand about conventional loans: your score is your price. A 40-point score improvement before you buy can save you tens of thousands over the life of the loan — which is why we sometimes advise buyers to spend 60 days optimizing credit before house hunting. It's not a delay; it's a discount.

Here's PMI's redeeming quality — you can get rid of it:

Request cancellation at 20% equity. Once your loan balance hits 80% of the home's original value through payments, you can request PMI removal. You'll need to be current and may need to show the home hasn't declined in value.

Automatic termination at 22%. By law, PMI must drop automatically when your balance reaches 78% of the original value through scheduled payments, as long as you're current.

Appreciation shortcut. If your home's value rises, a new appraisal proving 20%+ equity (some servicers require 25% if it's been under two years) can kill PMI years early. In appreciating markets, this is how most borrowers actually escape PMI — not by paying down, but by the market lifting them.

Compare that to FHA, where MIP is generally permanent below 10% down. A conventional borrower who buys at 5% down in a rising market can be PMI-free in 2-4 years; an FHA borrower is refinancing to escape it. That difference is worth real money.

Credit and Qualification: 620+ Typical

The program minimum for most conventional loans is a 620 credit score, but "minimum" and "good deal" are very different things. Here's the honest breakdown:

620-679: Approvable, but pricing is steep — higher rates and expensive PMI. FHA often beats conventional in this range. We run both and show you.

680-719: Solid conventional territory. Pricing is reasonable, PMI is moderate. This is where conventional starts winning for most buyers.

720-739: Good pricing tier. Noticeably better rates and PMI than the 680s.

740+: Best pricing. Top-tier rates, cheapest PMI. Above 760 there's little additional benefit — you've maxed the scale.

Beyond credit, conventional underwriting wants a debt-to-income ratio generally at or below 45% (up to 50% with strong compensating factors through automated underwriting), stable two-year employment/income history, and documented assets for down payment, closing costs, and reserves. Self-employed borrowers should expect extra scrutiny — two years of tax returns, and lenders average the income (a declining trend hurts).

One more conventional advantage: no upfront mortgage insurance fee. FHA charges 1.75% upfront; VA charges a funding fee; USDA charges a guarantee fee. Conventional charges nothing upfront — your costs are the down payment, standard closing costs, and monthly PMI if applicable.

Fixed-Rate vs. Adjustable-Rate (ARM)

Most conventional borrowers choose a 30-year fixed-rate loan — same principal and interest payment for 30 years, total predictability. The 15-year fixed carries a lower rate and builds equity dramatically faster, but the payment runs roughly 40-50% higher, so it suits buyers with strong cash flow who want the home paid off fast.

Adjustable-rate mortgages (ARMs) — typically 5/6, 7/6, or 10/6 ARMs, meaning the rate is fixed for 5, 7, or 10 years then adjusts every 6 months — offer lower initial rates than fixed loans. The discount is real: ARMs often price 0.5-1% below comparable fixed rates. They make sense when your time horizon is shorter than the fixed period: relocating for work in 6 years, buying a starter home you'll outgrow, or planning to refinance when the fixed period ends. The risk is equally real — if you're still in the home when the rate adjusts upward, your payment jumps. Never take an ARM betting that rates will fall; take it because your plan doesn't need the rate to stay low past the fixed period.

Who Is a Conventional Loan Best For?

Conventional is the right call when your credit is 680+ and you have at least 3-5% down — the pricing rewards you directly for financial strength. It's the only mainstream option for second homes and investment properties (government programs are primary-residence only, with narrow exceptions). It's ideal for buyers who expect appreciation to erase PMI quickly, for move-up buyers with 20% equity to roll over, and for anyone who wants the widest menu of terms and structures.

It's the wrong call when your score is under 660 (price FHA first), when you're a veteran (price VA first — always), or when you're buying in a qualifying rural area with no down payment saved (USDA may beat both). The best loan officers don't sell you their favorite product; they price your actual options. That's what we do — every pre-approval includes a side-by-side when more than one program fits.

How It Works

The Rockwell Conventional Process

Step 1: 15-minute pre-approval. We pull credit, analyze income and debts, and run your file through automated underwriting up front — so your pre-approval letter reflects a real underwriting decision, not a guess. In competitive markets across the Wasatch Front, Denver metro, or Treasure Valley, that strength wins offers.

Step 2: Lock your rate and structure. Fixed or ARM, 30-year or 15-year, 3% down or 20% — we model the total cost of each combination, including PMI timelines, so you choose with eyes open. Rate locks typically run 30-60 days; we time yours to your closing date.

Step 3: Processing and appraisal. Our processors verify everything once and order the appraisal. Conventional appraisals focus on market value (no FHA-style condition checklist), which keeps things moving on most properties.

Step 4: Underwriting to clear-to-close. Because we underwrite heavily up front, this stage is usually quiet — a condition or two, resolved in days.

Step 5: Close in 21 days on average. Sign, fund, get keys. Then, when the time comes — equity built, PMI removable, or rates moved — our refinance team is already familiar with your file.