What Is A Conventional Mortgage?
A conventional mortgage is a home mortgage not backed or insured by a federal government agency. Examples include Fannie Mae and Freddie Mac conforming mortgage loans. Conventional mortgage programs generally have flexible terms, offer low rates, and are known to have fast closing times. A conventional mortgage is a big umbrella with seven main types of mortgages underneath this umbrella, and later in the article, I’ll cover each of those types.
Conventional Mortgage Requirements
Here are the six basic requirements you must meet to obtain a conventional mortgage.
Who Should Consider A Conventional Mortgage
Conventional mortgages should be considered by every homeowner or homebuyer with a 680 or higher credit score. The program perfectly fits anyone with a 740 or higher credit score. W2 employees and self-employed individuals will benefit from it.
Conventional Mortgage Rates
If you are looking for some of the best rates in the mortgage industry, then a conforming mortgage, which is a conventional loan, is something you’ll want to consider, especially if your credit score is above 740, no matter how little of a down payment or equity you might have.
Conventional Loans At California Mortgage Finder
The Right Mortgage: We’ll listen to you and then find you the right mortgage in the least amount of time.
Personal Touch: At California Mortgage Finder, you’ll work with one person the entire time.
Fast Closings: Some clients can close in as little as two to three weeks, and most in three to four weeks.
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We’re uniquely positioned to offer clients the best of both worlds: low internet mortgage rates and exceptional service. Our streamlined process and client focus deliver an unparalleled experience for homebuyers and homeowners.
Conventional Mortgage Benefits
The most significant benefits of a conventional mortgage are flexibility, low rates, and high loan amounts. However, a conventional mortgage is not for everyone, especially for those with a sub-680 credit score. If your loan application meets the underwriting guidelines, then you’ve found an excellent choice for your next transaction.
Limited Income Documentation
Some conventional mortgages allow for limited income documentation. If you’re applying for a conforming loan and you qualify, you might only have to provide one year of income documentation.
Low Down Payment
Do you think you need a 20% down payment for a great mortgage rate? Not anymore! A conventional mortgage has a low down payment option that allows for as little as 3.00% down.
Cash-Out Refinance
Do you need to cash out some of your home’s equity? Then you should consider a conventional mortgage. At lower Loan-To-Value ratios, it has some of the best rates available, and you can close in as little as 30 days.
Fast Closings
Do you need to close in two to three weeks? Then your best chance at doing this might be with a conventional mortgage. If all your documentation is in order, then you might be eligible for a fast closing.
The Most Common Conventional Mortgage Loan Programs
Here is a list of the seven most common conventional mortgage loan programs.
Conforming
A conforming mortgage conforms to the loan amounts and underwriting guidelines of Fannie Mae and Freddie Mac. The conforming loan limits are updated yearly.
Conforming mortgage loans require 3% down (or a 97% loan-to-value ratio if it’s a refinance), more if you have a lower credit score. Debt-to-income (DTI) ratio requirements are usually 45% or lower; however, there are times when a loan applicant can go as high as a 50% DTI. All conforming mortgages must go through an Automated Underwriting System (AUS) that evaluates dozens of risk factors.
Desktop Underwriter is the AUS for Fannie Mae and Freddie Mac uses Loan Product Advisor.
The three main risk factors are credit history, the amount you’re borrowing compared to the home’s value, and your ability to repay the loan.
Portfolio
Portfolio mortgage loans are conventional loans typically underwritten to the standards of an individual lending institution. Under most circumstances, the lender plans to retain the loan’s servicing rights. Servicing rights mean that a lender facilitates the administrative requirements of the loans (i.e., sends out the monthly statements and required correspondence).
Jumbo
Another well-known conventional mortgage is the jumbo mortgage. This name refers to the loan amount, which is always higher than the conforming home loan limit. Jumbo loans can be portfolio loans, and these loans can generally be more challenging to qualify for. Usually, you will need at least 20% down (or 10% down with a second mortgage) and a credit score above 700.
Income sources are scrutinized more than conforming mortgages, and you’ll need a lower debt-to-income ratio to qualify.
Non-Qualified Mortgage Loans
Non-qualified mortgage (Non-QM) loans are unique conventional mortgage loans for those with unique income streams. These types of mortgages used to be referred to as “sub-prime” loans before the housing boom that started in the early 2000s. These loans do not meet the traditional income requirements set forth by the Consumer Financial Protection Bureau (CFPB). Non-QM conventional mortgages are suitable for those with seasonal employment.
For example, a loan applicant may be a ski instructor during the winter and a lifeguard during the summer. Both employments are contractual, meaning there is no guarantee they’ll have a job when the season changes.
Since these conventional loans have more risk than loans that require more income certainty, they come with higher rates, higher down payment requirements, higher credit scores, and lower Debt-To-Income(DTI) ratios.
Bank Statement Mortgage Loans
One type of non-qualified mortgage is a bank statement loan. This type of mortgage requires a loan applicant to turn in twelve or twenty-four months of bank statements. Depending on the loan applicant, these statements can be business or personal bank statements (sometimes both are required).
Income and expenses reported in the statements are used to determine income, and that amount is used during the underwriting process.
Debt Service Coverage Ratio
Debt Service Coverage Ratio (DSCR) mortgages are designed for real estate investors interested in purchasing or refinancing a non-owner-occupied property (rental). A DSCR loan is a mortgage based on a property’s cash flow, using only two metrics: mortgage debt and income. Maintenance, repairs, management fees, and other property-related expenses are not included.
The attractive part of a DSCR mortgage loan is that the applicant does not need to provide income documentation to qualify. The underwriter’s approval is based on the property’s cash flow. Credit score and loan-to-value ratio requirements are included in the underwriting process.
Individual Tax Identification Number
Individual Tax Identification Number (ITIN) loans are designed for people without a Social Security number but with a tax ID number. Essentially, these are work visa home mortgages for loan applicants who are in the United States on a work visa.4
Loan applicants must have a valid work visa, a two-year work history, and a qualifying debt-to-income ratio. Credit history is not required; however, it is preferred. Having a 620 or higher credit score with a two to three-year credit history makes getting approval much more likely.
Rates and fees for an ITIN loan are higher than those for a traditional conventional loan, and applicants are typically required to make a larger down payment.
Asset Depletion
An asset depletion mortgage loan is a home mortgage based on an applicant’s liquid assets rather than their taxable income. It’s excellent for loan applicants who may not have a job, have just transitioned to, or are in retirement.
The underwriter will take the loan applicant’s liquid assets and divide them by 240 or 360 months, and that number will be used to qualify the loan applicant for the asset depletion loan. Liquid assets include;
- Cash-out hand
- Stocks and bonds
- Certificate of deposits
Your physical assets, such as a paid-off car or jewelry, are not included. Only assets that can be sold quickly and have a reasonably self-evident cash value are included. Rates and fees are higher for asset depletion loans, as are the down payment requirements. Check with your loan officer about the underwriting requirements before you apply.
Explore Some Of Our Other Mortgage Programs

Bank Statement
A Bank Statement mortgage loan is designed for those who struggle to document their income with traditional sources.
FHA
FHA is a powerful program for those with less-than-perfect credit and a low down payment (or little equity).
Conventional Mortgage FAQs
Is A Conforming Mortgage The Same Thing As A Conventional Mortgage?
A conforming home loan is a specific type of conventional loan that “conforms” to the underwriting guidelines and loan limit requirements of Fannie Mae and Freddie Mac.
Many types of conventional mortgages are not conforming. For example, a jumbo mortgage is not a conforming mortgage, but it is a conventional mortgage because it’s not government-backed (like an FHA or VA mortgage). Additional example includes the Bank Statement Mortgage loan program.
Do Conventional Mortgages Have Mortgage Insurance?
Yes, some do and it’s called Private Mortgage Insurance (PMI). If you put down less than 20% or if you have less than 20% equity, then you will have to pay PMI with your regular monthly mortgage payment.
Am I Required To Escrow (aka Impound) My Property Taxes And Insurance With My Mortgage Payment?
No, unless you have less than 20% down, or if it’s a refinance with less than 20% equity. If you do, then you will need to have escrows (aka impounds).
Is There a Pre-Payment Penalty?
Some conventional mortgages do have a pre-payment penalty, while others might not (like conforming mortgage loans never have a pre-payment penalty).