Conventional loans

What a conventional loan is

“Conventional” means the loan is not a government-insured or government-guaranteed mortgage. Most conventional files that stay within FHFA’s county loan limits are purchased by Fannie Mae or Freddie Mac after closing. Amounts above those limits are jumbo (non-conforming) and follow investor rules instead.

For 2026, the official FHFA one-unit conforming baseline is $832,750. Some high-cost counties — including Pike County, Pennsylvania, and a group of northern New Jersey counties in our parsed FHFA file — use a higher one-unit ceiling of the county high-cost limit. Those figures are maxima, not approvals. Confirm the county on our Pennsylvania and New Jersey hubs or on FHFA’s list.

• Purchase, rate-and-term refinance, and cash-out refinance are all conventional product families.
• Primary residences, second homes, and 1–4 unit investment properties can be conventional; down payment, reserves, and PMI rules tighten as occupancy gets further from owner-occupied.
• This is not a rate quote and not a commitment to lend.

Who conventional usually fits

Conventional is often the better long-term cost if you can qualify. You typically need a middle FICO at or above 620, stable income, and a debt-to-income ratio that automated underwriting will accept. Many buyers with a down payment at 5% or more, or with a 3% program that fits, should price conventional next to FHA rather than assuming FHA is cheaper.

• First-time buyers who can document income and have a usable score.
• Repeat buyers and refinance clients who want PMI to be removable.
• Borrowers comparing an FHA loan they already have against a conventional refinance once equity supports dropping FHA mortgage insurance.
• Self-employed borrowers whose tax returns understate cash flow may need a 12-month bank statement conversation instead of forcing a conventional AUS file.

Down payment and PMI

Some conventional purchase programs allow as little as 3% down on an eligible one-unit primary residence. A lower down payment usually means private mortgage insurance (PMI) until the loan-to-value ratio supports cancellation.

Unlike typical FHA mortgage insurance, conventional PMI is often cancellable. On most standard conventional primary-residence loans, you can request cancellation around 80% loan-to-value based on the original value, and the Homeowners Protection Act requires automatic termination at 78% on many covered loans once you are current. Investor overlays and appraisal rules apply — ask us to map your file, do not treat a blog percentage as a cancellation date.

• Gift funds from eligible donors are often allowed; the paper trail has to match the program.
• Seller credits toward closing costs are capped by occupancy and LTV. Investment property has a lower cap than a primary residence.
• Putting 20% down avoids PMI on a typical conventional purchase, but 20% is not a minimum to buy.

Conventional vs FHA

FHA is often easier on credit depth and down payment. Conventional is often cheaper over time if you qualify, because it has no FHA-style upfront mortgage insurance premium and PMI can usually come off. Property condition standards are also typically more flexible on conventional than on FHA minimum property requirements.

• Loan limits: conventional uses FHFA conforming (or jumbo above that). FHA uses HUD county limits, which can be lower or, in a few high-cost MSAs, different from conforming. Check the county page.
• Insurance: conventional PMI vs FHA MIP. Ask for current PMI quotes and current FHA MIP; both change.
• Credit: conventional is score-sensitive. FHA can work with thinner or recovering credit when the rest of the file holds.
• FHA loans — the other side of this comparison

Documents we typically need

Your approval is only as strong as the documents behind the application. This is a high-level checklist, not legal advice and not a complete underwriting list.

• Government-issued photo ID for every borrower.
• Income: recent paystubs, two years of W-2s when employed, and tax returns plus year-to-date figures when self-employed or when other income is used.
• Assets: all pages of recent bank and brokerage statements for accounts used to close.
• Purchase contract (purchase) or mortgage statement and insurance (refinance).
• Letters of explanation for large deposits, employment gaps, or credit events — only if they apply.

Closing costs without pretending they are free

You still pay to close. What changes is who writes the check. Options that sometimes help, depending on the contract and the investor:

• Seller concessions negotiated in the purchase agreement, within program caps.
• Lender credits in exchange for a higher interest rate — a cost trade, not a gift.
• Gift funds from an eligible donor with a gift letter and transfer evidence.
• State housing-finance assistance (PHFA or NJHMFA) when the first mortgage and the assistance program can be stacked. Confirm on the agency site.

Taxes owed, liens, and refinancing out of FHA

Owing the IRS is not the same as having a recorded tax lien. An installment agreement that is documented and paid as agreed may be workable on a conventional file; an unaddressed lien usually is not. Tell the loan officer before you apply so the file is structured honestly.

Refinancing an FHA loan into conventional is a common goal once the home has enough equity to support a conventional LTV and to drop FHA MIP. There is no universal calendar date. We look at current value, payoff, credit, and whether conventional PMI (or no PMI) beats remaining FHA insurance.

Pennsylvania and New Jersey notes

PHFA Keystone Flex can be originated as a conventional first mortgage when PHFA’s rules fit. NJHMFA first-mortgage products are also delivered through participating lenders. Income limits, purchase-price limits, and assistance dollars live on the agency sites — not in a table we would invent here.

• Pennsylvania closings are typically title-company files.
• New Jersey is an attorney-closing state with a customary three-business-day contract review.
• Use the county pages for 2026 conforming and FHA limits.