The Cons Of A Conventional Loan
The main drawbacks of a conventional loan are stricter qualifying standards, private mortgage insurance when you put down less than 20%, a larger cash need than some government loans, and county loan limits that can push California buyers into jumbo territory. These are real trade-offs, and for some buyers FHA or VA is the better choice.
Key Takeaways
- Most conventional loans require a 620 minimum score and a debt-to-income ratio that is commonly up to 45%.
- With less than 20% down, you pay PMI. A weaker credit score can make PMI expensive.
- Conventional loans are generally not assumable, unlike FHA and VA loans.
- Loans above your county limit are jumbo loans with different rules.
What are the main cons of a conventional loan?
1. Tighter credit and debt standards
Most conventional loans need a minimum 620 score. FHA allows 3.5% down at 580 and above, and 10% down at 500 to 579. Conventional debt-to-income ratios are commonly up to 45%, sometimes up to around 50% with strong automated approval and compensating factors. If your credit is rebuilding, you may qualify more easily with an FHA loan. See the credit score guide and the DTI guide.
2. PMI with a small down payment
If you put down less than 20%, you pay PMI. Cost varies with your credit score and down payment, typically roughly 0.3% to 1.5% of the loan per year. On a lower score with 5% down, PMI can add a meaningful amount to your monthly payment. The upside is that it can be removed later. See Conventional Loans And Mortgage Insurance.
3. Pricing is sensitive to your profile
Conventional pricing adjusts for credit score, down payment, property type and occupancy. A lower score with a small down payment can raise both your rate and your PMI. FHA pricing is less sensitive to credit score, which is why it can come out cheaper for some borrowers. Our guide on FHA vs. conventional shows where the crossover tends to happen.
4. Larger cash needs for second homes and rentals
A second home often needs about 10% down, and an investment property commonly needs 15% to 25%. Seller concessions are also lower on investment properties (2%). See down payment options.
5. County limits can push you into jumbo
The 2026 baseline limit is $832,750, and the ceiling is $1,249,125. In California, a larger loan than your county allows becomes a jumbo loan. Learn more in conventional loan limits in California and jumbo loans.
6. Generally not assumable
FHA and VA loans can be assumed by a qualified buyer with approval. Conventional loans generally cannot. If a low rate on your loan could be a selling point later, that matters.
7. Documentation expectations
Conventional underwriting is thorough. Self-employed borrowers typically need two years of tax returns, and income must be documented. If your income does not fit standard documentation, non-QM loans may be an alternative, with trade-offs of their own.
Do the cons outweigh the benefits?
- Down payment: $45,000. Loan amount: $855,000.
- At an example PMI cost of 0.8% per year, PMI is $6,840 per year, or $570 per month.
- At 20% equity, which is a balance of $720,000 on the original $900,000 value, the PMI can be removed.
PMI is a real monthly cost, but it is temporary. The 0.8% figure is an assumption, not a quote.
Compare that with FHA, where mortgage insurance typically lasts for the life of the loan if you put down less than 10%. For many buyers with good credit, conventional still wins. For buyers with lower scores or limited savings, it may not. The pros and cons of a conventional loan page gives the balanced view, and the benefits of a conventional loan covers the other side.
How can I reduce the downsides?
- Improve your credit score before you apply. Even a modest jump can lower both rate and PMI.
- Pay down revolving debt to improve your DTI.
- Consider a larger down payment, gift funds or seller concessions where allowed. See gift funds.
- Ask about down payment assistance that can pair with a conventional loan. See combining assistance with conventional.
At Lendia, we tell you when another loan fits better
At Lendia, we compare options from multiple lenders and will say plainly when FHA, VA or another program is a better fit for you. Contact us or get a rate quote now.
Frequently Asked Questions
Is a conventional loan harder to get than an FHA loan?
Generally yes. Credit and debt standards are stricter. If you meet them, conventional is often less expensive over time.
Does PMI go away on a conventional loan?
Borrower-paid PMI can be removed at 80% of original value on request and terminates automatically at 78% of the scheduled balance. Lender-paid PMI is built into the rate and does not drop off the same way.
What happens if my loan is over the county limit?
It becomes a jumbo loan, which usually requires stronger credit, more reserves and a larger down payment.
Can I get a conventional loan after a bankruptcy or foreclosure?
Yes, after a waiting period that depends on the event. We review your timeline and explain your options. Rates and terms depend on your situation; approval requires qualification.
Is a conventional loan a bad choice for first-time buyers?
No. Many first-time buyers use 3% or 5% down conventional options. The right choice depends on credit, savings and monthly budget.
Talk to a Licensed Lendia California Loan Officer
At Lendia, we review your situation and show you the programs you qualify for.