Date of Last Revision: August 8, 2026

A conventional loan is a mortgage not insured or guaranteed by the U.S. government. Private lenders like banks, credit unions, and-online entities issue them. They are the most common type of home financing, split into conforming and non-conforming types

Key Features

• Private backing: Issued by private financial institutions rather than agencies like the FHA or VA.

• Conforming vs. Non-conforming: Conforming loans follow rules set by Fannie Mae and Freddie Mac. Non-conforming loans—like jumbo loans—exceed those limits. Please see Jumbo loans.

• Down payments: Can be as low as 3% for qualified buyers.

• Private Mortgage Insurance (PMI): Required if your down payment is less than 20%.

• 2026 Baseline vs. High-Cost Limits

  • 1-Unit Property: $832,750 baseline ($1,249,125 in high-cost areas)

  • 2-Unit Property: $1,066,250 baseline ($1,599,375 in high-cost areas)

  • 3-Unit Property: $1,288,800 baseline ($1,933,200 in high-cost areas)

  • 4-Unit Property: $1,601,750 baseline ($2,402,625 in high-cost areas)

Key Facts

• What it means: Loans at or below this amount can be bought by Fannie Mae and Freddie Mac. Loans above this limit are called jumbo loans.

• Local variations: Limits vary by county. Expensive housing markets scale higher based on local median home values.

• Where to check: You can look up specific caps for your region using the FHFA Conforming Loan Limits Map.

Qualification Rules

• Credit score: Generally requires a minimum score of 620.

• Debt-to-income (DTI) ratio: Usually capped around 43% to 45%.

• Loan limits: Subject to annual caps set by the Federal Housing Finance Agency (FHFA) for conforming status.

If you're thinking about applying, you can being with an estimated credit score and planned down payment to review affordability and see if you qualify?

For a conventional loan refinance, seasoning requirements depend on whether you are doing a rate-and-term (no cash-out) or a cash-out refinance. Rate-and-term refinances have little to no mandatory waiting period (often just 30 days or a requirement for a couple of consecutive on-time payments), whereas cash-out refinances strictly require the existing first mortgage to be at least 12 months old.

Rate-and-Term Refinance Seasoning

• Waiting Period: Little to none; some guidelines allow a new note date as soon as 30 days after the original loan's note date.

• Payment History: Lenders typically require proof that you have made your initial monthly payments on time.

• Same-Lender Rules: Individual lenders may enforce their own internal "early payoff" (EPO) overlay, which can penalize loan officers or restrict you from refinancing with the exact same company before 6 months.

Cash-Out Refinance Seasoning

• 12-Month Rule: Fannie Mae and Freddie Mac require the existing mortgage being paid off to have a note date at least 12 months prior to the new loan's note date.

• Title Ownership: You must generally be listed on the property title for at least 6 months (except for specific exemptions like inheritance or divorce).

• Delayed Financing Exception: If you bought the property with all cash, you can bypass the standard 6-month title waiting period to recoup your cash, provided you meet strict documentation rules.

The 12-month seasoning rule by Fannie Mae and Freddie Mac requires an existing first mortgage to be at least 12 months old before it can be paid off in a cash-out refinance. This policy prevents rapid equity extraction, reduces mortgage fraud risks, and stabilizes the secondary mortgage market by ensuring loans have a proven payment history.

• Prevents Rapid Cash-Out: Stops buyers or owners from quickly tapping into home equity or cash contributions right after buying a property.

• Reduces Fraud Risk: Deters property flipping schemes or inflated appraisals used to pull cash out of a newly bought home.

• Loan Seasoning: Ensures the borrower has a reliable payment track record on the original debt before replacing it.

Key Details

• Time Measurement: Counted from the note date of the existing loan to the note date of the new refinance loan.

• Applies To: Cash-out refinance transactions on first liens.

• Exceptions: Does not apply to the payoff of existing subordinate liens (like second mortgages or HELOCs) or standard rate-and-term (limited cash-out) refinances.

On a conventional loan is an extra monthly fee required by lenders when your down payment is less than 20%. It typically costs between 0.30% and 1.15% of the loan amount per year, but it can be canceled once you reach 20% home equity.

Cost and Calculation

• Price range: Usually $30 to $70 per month for every $100,000 borrowed.

• Credit score: Higher scores mean lower monthly PMI rates.

• Down payment: Smaller down payments mean higher monthly costs.

How to Remove PMI

• Request it: You can ask your lender to cancel PMI when your balance hits 80% of the home's original value.

• Automatic removal: Lenders must stop PMI when your balance drops to 78%.

• Refinance: You can refinance your loan if your home value goes up a lot.

When a mortgage servicer checks if you qualify to stop paying private mortgage insurance, the process is called a PMI cancellation review or PMI termination review. You can make this request by contacting you current mortgage servicer’s escrow department directly.

Depending on how the threshold is reached, this review falls under specific legal terms defined by the Homeowners Protection Act:

Review Types

• PMI Cancellation: A borrower-initiated request triggered when your principal balance reaches 80% of the home's original value.

• Automatic PMI Termination: The servicer's required review when your principal balance hits 78% of the home's original value based on the payment schedule.

What the Servicer Checks

• Loan-to-Value (LTV) Ratio: Confirms your balance is low enough.

• Payment History: Checks that you have no late payments.

• Property Liens: Verifies there are no second mortgages or HELOCs.

• Home Value: Ensures the property value has not dropped below the original purchase price (if doing an early cancellation based on appreciation).

Conventional loans require a minimum down payment of 3%, which can be paired with down payment assistance (DPA) programs supplied by state agencies, local municipalities, or specific mortgage programs like Fannie Mae HomeReady or Freddie Mac Home Possible. Assistance typically comes as a grant, a forgivable second lien, or a deferred payment loan.

Types of Down Payment Assistance

• Grants: Free funds that do not require repayment.

• Forgivable Loans: Second mortgages forgiven if you live in the home for a set number of years.

• Deferred-Payment Loans: Silent second liens paid back only when you sell, refinance, or pay off the primary mortgage.

• Low-Interest Second Mortgages: Small monthly payment loans stacked with your main loan.

Major Conventional DPA Options

• State Housing Agencies: Programs like CalHFA offer specialized conventional subordinate loans covering a percentage of the purchase price.

• National Programs: Organizations like the National Homebuyers Fund (NHF) provide assistance up to 5% of the loan amount for conventional financing.

• Lender-Specific Grants: Major banks and lenders feature proprietary credit or grant options for low-to-moderate-income borrowers meeting specific area median income (AMI) limits.

Qualification Factors

• Income Limits: Most programs restrict eligibility based on a percentage of your area’s median income (AMI).

• Credit Scores: Standard conventional DPA usually demands a minimum FICO score of 620.

• Homebuyer Education: Completion of an approved homeownership education course is almost universally mandatory.

• Primary Residence: Properties must be owner-occupied; investment or vacation homes do not qualify.

Important information to determine where to begin:

• The state or county where you plan to buy

• Whether you are a first-time homebuyer

• Your estimated credit score range

Conventional loans can finance a wide variety of property types, including single-family detached homes, townhouses, condos, multi-unit properties up to 4 units, manufactured homes, and modular houses, used as a primary residence, second home, or investment property.

Eligible Property Structures

• Single-Family Detached: Traditional standalone houses on a single plot of land.

• Townhouses & Row Houses: Attached individual multi-floor homes sharing side walls.

• Condominiums: Individual units within a larger building or community with approved project status.

• Multi-Unit Properties: Duplexes, triplexes, and fourplexes (2 to 4 units total).

• Manufactured & Modular Homes: Factory-built housing that meets specific permanent foundation and safety standards (such as Fannie Mae guidelines).

• Co-ops (Cooperatives): Eligible share-ownership housing corporations where you own shares rather than real property directly (subject to lender approval).

Allowed Occupancy Types

• Primary Residence: The home you live in full-time (allows lowest down payments, starting at 3%).

• Second / Vacation Home: A secondary property occupied part-time by the buyer.

• Investment Property: Rental or income-generating real estate (requires higher down payments).

General Condition Rules

• The home must be safe, structurally sound, and habitable.

• The property must pass a standard appraisal to verify value, though conventional loans are generally more flexible with minor cosmetic fixer-uppers than strict government loans like FHA.

Most modern conventional home loans do not have prepayment penalties. Under federal rules from the Consumer Financial Protection Bureau, if a conventional mortgage does include a penalty, it is strictly capped, applies only to payoffs within the first three years, and is completely banned after that time.

Federal Limits on Conventional Loan Penalties

• First & Second Year: Maximum of 2% of the outstanding loan balance.

• Third Year: Maximum of 1% of the outstanding loan balance.

• After Three Years: 0% (penalties are prohibited).

How Penalties Apply

• Full Payoff: Triggered if you sell the home or refinance the entire mortgage during the penalty window.

• Partial Payments: Small extra monthly principal payments typically do not trigger a penalty.

• Lender Rule: Lenders that charge a prepayment penalty must also offer an alternative loan option without one.

A balloon payment on a conventional or mortgage loan is a large, single lump-sum amount due at the end of a short-term loan. Monthly payments are lower because they are based on a long payback period, but the remaining balance is due all at once after 5 to 7 years.

How It Works

• Short Term: The loan usually lasts for 5 to 7 years.

• Long Plan: Payments are figured out as if you have 30 years to pay.

• Big Final Cost: The rest of the money you owe is due on the final day.

Pros and Cons

• Pro: You get lower monthly bills at the start.

• Con: You face a huge risk of losing the home if you cannot pay or refinance.

• Rarity: True balloon payments are very rare for standard home loans today and are mostly used for business or commercial property.

Do Conventional loans have negative amortization?

No, conventional loans do not have negative amortization. Under modern lending rules, standard conventional mortgages backed by Fannie Mae or Freddie Mac must be structured as Qualified Mortgages, which legally prohibit risky features like negative amortization where the loan balance increases over time.

Why Conventional Loans Prohibit It

• Qualified Mortgage Rules: Federal consumer protection rules ban negative amortization on qualified residential mortgages.

• Full Payment Structure: Standard conventional payments are fully amortizing, meaning they always cover all accrued interest plus a portion of the principal.

• No Growing Balances: Your monthly payment reduces the overall debt rather than adding unpaid interest back onto the principal amount.

Where Negative Amortization Occurs

• Historic/Niche Products: It used to appear in older payment-option adjustable-rate mortgages (ARMs) before the 2008 financial crisis.

• Specialty Financing: It is virtually absent from the conventional market today, though rare non-conforming or niche private portfolios might experiment outside standard guidelines.