A conventional mortgage follows Fannie Mae or Freddie Mac guidelines rather than a government guarantee. First-time buyers can put as little as 3% down; others typically 5% or more, with 10% to 25% for second homes and investment properties. Private mortgage insurance applies under 20% down and cancels once you reach 20% equity, which is the biggest long-run advantage over FHA. Pricing is sensitive to credit score and down payment, so the same house can cost meaningfully more or less per month depending on which of those levers you pull.
Who this is for
Buyers with a 620 or better score and documented income, on a primary residence, a second home or a one-to-four-unit investment property. Also the natural landing spot for FHA borrowers who have built equity and want the mortgage insurance gone.
How qualification works
Conventional underwriting runs your file through Fannie Mae's or Freddie Mac's automated system, which weighs credit, income stability, debt ratio, assets and reserves together. Three things the system cares about that borrowers rarely think about:
- Income type and history. Base salary counts immediately. Overtime, bonus and commission usually need a two-year history and are averaged; declining income is averaged conservatively or excluded. Rental income needs leases or tax returns; retirement and asset-based income has its own rules.
- Occupancy. Primary, second home and investment carry different minimum down payments, pricing and reserve requirements, and misrepresenting occupancy is fraud, so we get it right up front.
- Property type. Condos and PUDs go through project review, which is where a clean borrower can still hit a wall.
What I evaluate before it goes to underwriting
- Which income the automated system will actually use, and how bonus, overtime, commission or rental income averages out
- Whether a small credit-score improvement moves you into a better pricing tier before the credit pull
- The first-time-buyer 3% option and any income-limited flexible programs you may fit
- Gift funds and how they must be sourced and documented
- Condo or PUD project eligibility early, before the appraisal reveals it
What documentation is needed
- Two years of W-2s and 30 days of pay stubs
- Two months of bank statements, all pages
- Two years of tax returns if self-employed, commissioned, or receiving rental income
- Gift letter and source if a relative is helping; full checklist
Send everything as complete PDFs. Why, and how.
Common underwriting issues
- Large deposits without a paper trail
- Declining or short-history variable income averaged lower than the borrower expected
- Condo projects that fail review over litigation, reserves or investor concentration
- Recent job changes across industries
- Debt ratio pushed over the line by a new car or credit line opened after pre-approval
Down payment, reserves and pricing
3% for qualifying first-time buyers, 5% and up otherwise, and 10% to 25% on second homes and investment properties depending on units and occupancy. PMI is required under 20% down and can be cancelled at 20% equity by request, with automatic termination at 78% of the original value. Seller contributions run from 3% to 9% of price depending on down payment and occupancy. Reserves are often required on second homes and investment properties, and always help on a marginal file.
Nevada and Texas considerations
In Las Vegas, tip and gaming income is documented, not guessed; a 90-day tip average can read very differently from a year-to-date figure, and that is the most common reason a hospitality borrower gets a lower approval than they should. In Texas, property taxes are high and a new build's first tax bill is often assessed on the lot alone, so I quote new construction off the finished value and the full MUD or PID rate. Las Vegas · San Antonio.
Example scenario
A nurse at Methodist with two years of overtime history, a 720 score and 5% saved. The overtime averages in, the score sits one tier below the best pricing, and paying down one card before the pull moves it up. That is a smaller monthly payment for the life of the loan for a few hundred dollars now, which is the kind of lever conventional gives you and FHA does not.
Common questions
Is 20% down required?
No. It avoids PMI, but 3% to 5% down conventional loans are common and PMI cancels once you reach 20% equity.
Conventional or FHA?
Usually conventional if your score and down payment qualify for reasonable pricing, because the mortgage insurance cancels. FHA when credit or debt ratio need the extra room. I run both on every file where it is close.
Can I use a conventional loan on a rental?
Yes, on one-to-four units with a larger down payment, reserves, and rental income counted from leases or returns. For investors who would rather not document personal income, a DSCR loan is the alternative.
What is the conforming loan limit?
It is set annually by FHFA and differs by county. Anything above it is a jumbo loan with its own rules. I confirm the current figure on your file.
Sources
Fannie Mae Selling Guide · Freddie Mac Seller/Servicer Guide · FHFA conforming loan limits
Guidelines are the agencies'; lenders add overlays and change them. Every figure on this page was checked on the review date below and is confirmed again against your file before it goes in a quote.
