Conventional loans, explained plainly

Who a conventional loan fits

If your credit is in good shape and you have at least a few percent to put down, a conventional loan is worth pricing against FHA. It works for primary homes, second homes, and investment properties, which FHA, VA, and USDA loans do not. It also handles condos, townhomes, and two- to four-unit properties.

First-time buyers are not shut out. Fannie Mae and Freddie Mac both have programs that allow as little as 3% down, and some of them have income limits tied to the area's median income. I check which ones you fit.

Down payment and mortgage insurance

With less than 20% down, a conventional loan carries private mortgage insurance, or PMI. Unlike FHA mortgage insurance, PMI goes away. You can ask the servicer to cancel it once you have 20% equity based on the home's original value, and by law it drops off on its own a little after that as long as your payments are current. Your PMI cost depends on your credit score and down payment, so a stronger file pays less for it.

Put 20% down and there is no mortgage insurance at all. That is the point where a conventional loan usually pulls well ahead of FHA for a borrower with good credit.

What you will need

Conventional underwriting is document-driven. Before I can issue a pre-approval, I will ask for:

• Thirty days of pay stubs and two years of W-2s, or two years of tax returns if you are self-employed or paid on commission
• Two months of statements for every account you will draw from, with large deposits explained
• A photo ID and permission to pull credit
• Details on any other property you own, including mortgage statements and leases

Common misconceptions

These come up in almost every first conversation:

• You do not need 20% down. Many of my conventional buyers put down far less.
• Student loans do not automatically disqualify you. Underwriting counts a payment for them, and I will show you how it is calculated.
• A conventional loan is not always cheaper than FHA. With a lower credit score and a small down payment, FHA can win. I price both and show you the comparison.
• You can use gift funds for a conventional down payment, with a letter and a paper trail.

How I shop a conventional loan

Utopia Mortgage is a broker, not a bank. I take one application and one credit pull and price it across a network of lenders. Every lender adds its own overlays to the Fannie Mae and Freddie Mac rules and prices credit tiers a little differently, so the same file can come back with noticeably different offers. My job is to find the one that fits you, not to fill one bank's pipeline.

I have also written offers for buyers as a licensed Texas Realtor, so I know what a listing agent looks for in a pre-approval letter. Mine spell out the program, the down payment, and that the file has already been through automated underwriting.

All loans are subject to credit approval, and program terms vary by lender.