Conventional Home Loan

What Is a Conventional Home Loan?

Conventional loans can be a great lower cost mortgage option for people who can afford to take advantage of some of its key benefits. One of these benefits is the lack of an additional mortgage insurance payment for borrowers who are able to make a 20% down payment. Even if you’re not able to put 20% down at close you can still have your mortgage insurance removed, after you reach 20% in equity, without having to refinance your property.

Borrowers who are refinancing also often choose conventional loans to save money compared to their existing mortgages. For example, FHA borrowers may transition to a conventional loan in order to eliminate mortgage insurance while getting a great rate.

Another key benefit of a conventional loan is its flexibility to be applied to many different kinds of properties. Conventional loans can be used to finance a primary residence, a second home, or a rental property.

Conventional loan borrowers have the choice of opting for either adjustable-rate (ARM) or fixed-rate loans, depending on their plans for the property. While many prefer the reliability of a fixed rate that stays the same over the life of the loan, some will opt for an adjustable rate if they want to take advantage of the lower rate and don’t plan on staying in the house long enough to be at risk of seeing their payment increase.

While most conventional loans do require a down payment of some kind, many borrowers are surprised to learn that you can qualify for a conventional loan with as little as 3% down. If you wish to avoid mortgage insurance, you will need to put at least 20% down or wait until you reach approximately 20% equity in the home to cancel it.

Conventional Purchase

PennyMac offers a variety of conventional loan options to help borrowers purchase their dream home. Borrowers with enough funds for a 20% down payment can avoid mortgage insurance immediately while others can have it removed with an appraisal after reaching an 80% Loan-to-Value (LTV). There is also added flexibility to accommodate multiple types of properties, including second homes and investment properties. Regardless of how you can benefit from a conventional loan, PennyMac will work with you to make sure all your options are in front of you.


  • Avoid mortgage insurance with a 20% down payment
  • Term options are more flexible and easier to customize and match to your financial needs
  • They can be used for many types of properties, from single-family homes to condominiums
  • Close On-Time Promise*
  • Better Rate Promise*

Conventional Refinance

For homeowners looking to save on their current mortgage payments, PennyMac also offers conventional refinance loans. Refinancing into a conventional loan is a great way to get a great rate at a term that suits your financial goals. Best of all, you can refinance into a conventional loan from any other kind of loan.


  • All you need is an 80% LTV to avoid mortgage insurance
  • Flexible term options could enable you to save money without extending the length of your loan

Conventional Cash-Out Refinance

A Cash-Out Refinance Loan from PennyMac is a way to access the equity in your home to tackle things like home improvements, lingering debt or any other expenses that you need help managing. In some cases, you may also be able to lower your monthly interest rate as well. PennyMac offers a wide range of cash-out refinance options to suit any number of needs, including adjustable and fixed-rate loans in a variety of term lengths.


  • Use cash from your equity for anything, including home improvements or paying off high-interest debt
  • Manage your debts at the best possible rate
  • Consolidate other debt from multiple sources, like auto loans and credit cards, into a single payment and simplify your finances
FHA-to-Conventional Refinance

Many home buyers opt for a home loan insured by the Federal Housing Administration (FHA), often because of the minimal down payment and flexible financial requirements. These loans are a great way for first-time homebuyers to get financing but sometimes a transition to a conventional loan can make more sense after you’ve built equity. Refinancing into a Conventional loan can often lower your monthly payment by both lowering your rate and removing mortgage insurance. Even if you’re not lowering your rate, eliminating mortgage insurance alone could still save you both on your monthly bill and over the life of your loan.


  • Get a lower interest rate and lower your monthly payments*
  • Reduce or remove your mortgage insurance payments

Who Is Eligible for a Conventional Loan?

While products like VAUSDA and FHA loans are structured to make home buying possible for a wider range of people, conventional loans have somewhat more stringent standards. Qualifying for a conventional loan generally requires the borrower to show an overall stronger financial profile to the lender in order to qualify for some of the unique benefits.

A few of the key eligibility requirements include:

  • Good credit – Generally credit scores of 620 or higher depending on the transaction, though the FICO requirement may vary from lender to lender
  • Minimum 3% down payment – While you may choose to pay as little as 3% down, an approximately 20% minimum down payment is required to eliminate the need for mortgage insurance
  • Cash reserves – You should have at least two months cash reserves after closing to cover your loan costs
  • Proof of income – You will need to show steady income to cover the cost of your loan and self-employed individuals will need to supply two years of tax returns
  • Debt-to-income – Your debt-to-income ratio should be no more than 45%, but can go up to 50% in limited cases. This is the percentage of your monthly gross income that is paid out to recurring debts.

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