Is A Conventional Loan Right For You?
A conventional loan is usually the right choice if you have a credit score of at least 620, manageable debts, and a down payment you are comfortable with. It is also the main option for second homes and investment properties. If your credit or savings are limited, FHA may fit better. If you served, check VA first.
Key Takeaways
- Conventional tends to win when you have good credit, stable income and at least 5% down.
- FHA can be a better fit with lower credit scores or limited savings. VA is worth checking first if you are eligible.
- Second homes and investment properties use conventional or other non-government financing.
- The deciding numbers are your monthly payment, upfront costs and how long you plan to keep the loan.
How do I decide if a conventional loan fits?
Work through these five questions in order.
- What is my credit score? At 620 or higher, conventional is available. Above roughly 700, pricing and PMI usually improve noticeably. Under 620, look at FHA.
- How much will I put down? At 20%, you avoid PMI. At 3% to 19%, PMI applies. See down payment options.
- What are my monthly debts? Conventional DTI is commonly up to 45%, sometimes up to around 50% with strong factors. FHA often allows more flexibility.
- How will I use the property? Primary home: any option. Second home or rental: conventional.
- How big is the loan? Under your county limit, it can be conforming or high-balance. Above, it is a jumbo loan. See conventional loan limits.
How does conventional compare with FHA and VA?
| Feature | Conventional | FHA | VA |
|---|---|---|---|
| Typical minimum down payment | 3% on certain programs, 5% common | 3.5% with 580+ score; 10% with 500-579 | Often none required up to the appraised value, with limits |
| Typical minimum credit score | 620 for most loans | 580 for 3.5% down | VA sets none; lenders do |
| Mortgage insurance | PMI under 20% down; removable | Upfront 1.75% plus annual MIP (roughly 0.50% to 0.75% per year); life of loan if under 10% down | No monthly mortgage insurance; a funding fee applies unless exempt |
| Occupancy | Primary, second home, investment | Primary residence only | Primary residence only |
| Assumable | Generally not | Yes, with lender approval | Yes, with approval |
VA zero-down has limits: you may need cash if the price is above the appraised value, if you have partial entitlement above the county limit, or to cover closing costs and points. See VA loans and FHA loans, and the full comparison in VA vs. FHA vs. conventional.
Which scenario sounds like you?
Scenario 1: Strong credit and 10% down
A buyer with a 760 score purchasing an $850,000 home puts down $85,000 for a $765,000 loan. Conventional is likely the best fit. PMI is modest at that score and can be removed as the balance falls toward $680,000.
Scenario 2: 600 score and 3.5% saved
This buyer cannot meet the 620 conventional minimum. FHA is the likely route. Later, once equity reaches 20% or more and the score improves, a refinance to conventional can drop the FHA premium. See FHA loans.
Scenario 3: Veteran with a stable income
A VA loan avoids monthly mortgage insurance and often has lower pricing. Compare it against conventional with a large down payment before deciding. See VA loans for home purchase.
Scenario 4: Buying a rental or second home
FHA and VA are not options. Conventional is the starting point, with roughly 10% down for a second home and 15% to 25% for an investment property. See investment property financing.
Scenario 5: Self-employed with write-offs
If tax returns show low income after deductions, conventional may fall short. Look at conventional for the self-employed, and if needed non-QM loans.
How long do I plan to keep the loan?
Holding period changes the answer. If you may sell or refinance within a few years, upfront costs matter more than lifetime cost. If you plan to stay a decade or more, lower long-term mortgage insurance cost matters more, and that is where conventional’s removable PMI tends to help.
What if I am on the fence?
Ask for side-by-side quotes. A loan with a slightly higher rate can still cost less once mortgage insurance is counted, and the reverse can be true too. Look at monthly payment, cash to close, and total cost over the time you expect to keep the loan. For a full picture of the strengths and weaknesses, read the benefits and the cons of a conventional loan, check conventional loan requirements, or go back to Conventional Loans. See also who qualifies for a conventional loan.
At Lendia, we help you choose with real numbers
At Lendia, we review your credit, income and goals, compare options from multiple lenders, and tell you which loan fits. A Licensed Lendia California Loan Officer can run the numbers on each. Contact us or get a rate quote now.
Frequently Asked Questions
Is conventional better than FHA?
For many borrowers with good credit and 5% or more down, yes. For lower scores or smaller savings, FHA can be better. It depends on your numbers.
What is the minimum credit score for a conventional loan?
Most conventional loans require 620.
Can I switch loan types later?
Yes, through a refinance. Many FHA borrowers refinance to conventional once they have 20% equity. Closing costs apply.
Should I put 20% down?
Not necessarily. 20% avoids PMI, but keeping cash for reserves and repairs can matter more. We can compare scenarios.
Does conventional work for a condo?
Yes, if the condo project meets program requirements. Your loan officer can check this early.
Is a rate or approval guaranteed?
No. Rates and terms depend on your situation; approval requires qualification. We review your full profile first.
Talk to a Licensed Lendia California Loan Officer
At Lendia, we review your situation and show you the programs you qualify for.