Conforming and nonconforming conventional loans
A conventional loan is made without government mortgage insurance. Many conventional loans are conforming, meaning their size and underwriting fit current Fannie Mae or Freddie Mac purchase requirements. A conventional loan above the county limit is generally called jumbo and can follow different credit, reserve, appraisal and documentation standards.
Down payment and mortgage insurance
Eligible primary-residence transactions may permit a low down payment, while second-home and investment-property requirements are usually higher. Private mortgage insurance is commonly required when a first mortgage exceeds 80% of property value. Coverage, price and cancellation rules vary by transaction.
What underwriting reviews
- Credit history and score, including housing-payment patterns
- Stable qualifying income and employment or self-employment documentation
- Monthly debt obligations and debt-to-income ratio
- Down payment, closing funds, reserves and the source of assets
- Property type, condition, value, occupancy and title
Occupancy affects eligibility
A primary residence is the home the borrower will occupy as their principal dwelling. A second home generally must be suitable for year-round use and not function as a rental property. An investment property is owned for income, appreciation or another business purpose. Accurate occupancy is essential to underwriting and pricing.
Benefits and tradeoffs
Conventional financing can offer flexible terms, broad property eligibility and cancellable mortgage insurance in some circumstances. Tradeoffs may include stricter credit, reserve or property rules than another program and pricing that changes based on credit, equity, occupancy, units and other risk factors.