Conventional home loans: low down payment, high-balance, and jumbo
A conventional loan is the most common type of mortgage. It is not insured or guaranteed by the government, and most follow Fannie Mae and Freddie Mac rules, which is why the industry also calls them agency or conforming loans. They must fit loan limits set each year by the Federal Housing Finance Agency, and loans above those limits are conventional jumbo loans.
What a conventional loan is
Conventional loans are mortgages written to the guidelines of Fannie Mae and Freddie Mac so they can be sold to those two companies after closing. Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs): they do not lend to you directly, but they buy loans from lenders and package them for investors, which keeps money flowing back to lenders.
"Conventional" means the loan is not insured or guaranteed by a federal agency the way Federal Housing Administration (FHA), Department of Veterans Affairs (VA), and U.S. Department of Agriculture (USDA) loans are. "Conforming" means the loan fits the GSEs' size limit and underwriting rules. In practice, most people use "agency loan" and "conforming loan" to mean the same thing.
Because the rules are standardized, conventional loans are predictable. Most are designed to meet the Consumer Financial Protection Bureau (CFPB) Qualified Mortgage (QM) definition, which includes limits on risky features such as interest-only payments. For borrowers whose income is easy to document, conventional loans are often the lowest-cost option available.
How conforming loans work and how you qualify
A conforming loan qualifies you on documented income, credit history, assets, and the property itself. Lenders typically verify income with tax returns, W-2 forms, and pay stubs, then compare your monthly debts with that income to find your debt-to-income (DTI) ratio. They also look at your loan-to-value (LTV) ratio, which is the loan amount divided by the home's value.
Fannie Mae and Freddie Mac set the baseline rules, and automated underwriting systems weigh your full file together. A stronger profile in one area can offset a weaker one in another. Individual lenders may add their own stricter requirements on top of Fannie Mae and Freddie Mac guidelines, so the exact credit score, DTI, and reserve standards you face vary by lender.
Conforming loans can be used for a primary residence, a second home, or an investment property, with different terms for each. Owner-occupied homes generally get the most favorable treatment.
High-balance conforming loans in high-cost areas
A high-balance conforming loan is a conforming loan in a county where the Federal Housing Finance Agency (FHFA) has set a higher limit because local home prices are high. FHFA publishes a baseline conforming limit each year and higher limits for designated high-cost areas.
High-balance loans are still sold to Fannie Mae and Freddie Mac and follow their guidelines, though some terms can differ from a standard conforming loan. The limit depends on the county where the property sits and changes each year, so check the current figure on the FHFA conforming loan limit page rather than relying on last year's number.
In a high-cost area, this matters a great deal. A price that would require a jumbo loan in one county may fit within the high-balance limit in another.
Low down payment conventional options
Some conventional programs let qualifying buyers put down as little as 3 percent. Fannie Mae's HomeReady and Freddie Mac's Home Possible are the two best-known examples, and each company sets its own eligibility rules, including income limits tied to the area where you buy.
These programs are aimed at creditworthy buyers with low to moderate incomes. Depending on the program and your situation, you may need to complete a homeownership education course. Down payment funds can often come from approved sources such as gifts, subject to each program's rules.
A smaller down payment means a larger loan, a higher monthly payment, and mortgage insurance. It can still be a sound choice if it gets you into a home sooner and the payment fits your budget. A loan officer can show you how a low down payment conventional loan compares with an FHA loan for your specific numbers.
Private mortgage insurance and how to remove it
Private mortgage insurance (PMI) is usually required on a conventional loan when you put down less than 20 percent. PMI protects the lender, not you, if the loan defaults. It is typically added to your monthly payment, though other payment structures exist.
Unlike some government mortgage insurance, conventional PMI does not have to last for the life of the loan. According to the CFPB, you can ask your servicer to cancel PMI once your balance is scheduled to reach, or you have paid it down to, 80 percent of the home's original value. PMI generally ends automatically when the balance is scheduled to reach 78 percent of the original value, as long as you are current on payments.
Conditions apply. Your servicer may require a good payment history, proof that the home has not lost value, and that you have no second liens. The rules use the original value of the home, so read your servicer's PMI disclosure and the CFPB guidance on removing PMI before you request cancellation.
Conventional jumbo loans above the conforming limit
A conventional jumbo loan is a mortgage larger than the conforming limit for the property's county. Because it is too large for Fannie Mae and Freddie Mac to buy, the lender either keeps it or sells it to private investors, and each lender writes its own guidelines.
Conventional jumbo loans still generally use full documentation: tax returns, W-2s, and verified assets. Many lenders expect stronger credit, more cash reserves, and a larger down payment than they would for a conforming loan, though requirements vary by lender and program. Some jumbo loans also require a second appraisal.
If you need a large loan but your income does not show cleanly on tax returns, a Non-QM jumbo loan uses alternative documentation instead, usually at a higher cost.
Refinancing and cash-out with a conventional loan
You can refinance a conventional loan to change your rate, your term, or both, or to take cash out of your home equity. A rate-and-term refinance replaces your existing loan without taking out extra cash. A cash-out refinance replaces it with a larger loan and pays you the difference.
Cash-out refinances usually come with tighter limits on how much of your home's value you can borrow and may cost more than a rate-and-term refinance. Fannie Mae and Freddie Mac rules also set how long you must have owned the property before some refinances are allowed. The specifics vary by program and lender.
Refinancing has closing costs, so it makes sense only when the benefit, such as a lower payment, a shorter term, removing mortgage insurance, or freeing up cash for a clear purpose, outweighs what you pay to get it.
When an FHA, VA, or self-employed loan may fit better
A conventional loan is not always the best fit. If you have a smaller down payment and a credit history that is still building, an FHA loan may be easier to qualify for. If you are an eligible veteran or service member, a VA loan may let you buy with no down payment. If you are buying in an eligible rural or suburban area and your household income is within limits, a USDA loan may also fit. Our FHA, VA, and USDA loans overview covers all three.
A Non-QM loan may fit better when your income is real but hard to show the standard way. That includes self-employed borrowers whose tax returns show heavy write-offs, investors who want to qualify on rental income, and borrowers with significant assets but little regular income. Non-QM loans usually cost more and can include prepayment penalties, so they are typically a second choice when a conventional loan works.
Not sure which path applies to you? Talk to Mortza. The AI advisor reviews your scenario and outlines likely options, then a licensed loan officer confirms what you actually qualify for. The AI does not approve loans.
Common questions
Are Fannie Mae and Freddie Mac lenders?
No. Fannie Mae and Freddie Mac do not lend directly to homebuyers. They buy mortgages from lenders that follow their guidelines, then package those loans for investors. That gives lenders fresh money to lend again. You apply with a lender, and if your loan meets Fannie Mae or Freddie Mac rules, the lender may sell it to one of them after closing.
Is a conventional loan the same as a conforming loan?
Not exactly. A conventional loan is any mortgage not insured or guaranteed by a federal agency. A conforming loan is a conventional loan that also meets Fannie Mae and Freddie Mac size limits and underwriting rules. Conventional jumbo loans are conventional but not conforming, because they exceed the limit set each year by FHFA.
Why are loan limits higher in some areas?
FHFA sets a baseline conforming limit each year and allows higher limits in counties where home prices are high. That means a larger loan can still be treated as a high-balance conforming loan instead of a jumbo loan. Check the FHFA site for your county's current limit.
Can I put less than 20 percent down on a conventional loan?
Yes. Many conventional loans allow less than 20 percent down, and Fannie Mae HomeReady and Freddie Mac Home Possible allow as little as 3 percent for qualifying buyers. With less than 20 percent down you will usually pay private mortgage insurance until you reach the point where it can be canceled or ends automatically.
Does PMI ever go away on its own?
Generally yes, on conventional loans. According to the CFPB, PMI generally ends automatically when your balance is scheduled to reach 78 percent of the home's original value, as long as you are current on payments. You can ask to cancel it earlier, once you reach 80 percent, if you meet your servicer's conditions.
What if I'm self-employed and my income does not fit conventional guidelines?
If your income is real but hard to document with tax returns and W-2s, a Non-QM loan may work. These loans can qualify you using bank statements, assets, or rental income. They usually carry higher rates than conventional loans and sometimes prepayment penalties, so compare both paths before deciding which one fits.