Conventional loans

What a conventional loan is

A conventional loan is any mortgage not insured or guaranteed by a government agency. Most are conforming, meaning they meet the standards set by Fannie Mae and Freddie Mac, which is what allows lenders to sell them on and keep rates competitive.

It is the default programme for most buyers, and for good reason: the mortgage insurance is temporary rather than permanent, the property standards are less restrictive, more condominium buildings qualify, and sellers view the offer as stronger.

Qualifying

"First-time buyer" for the 3% down programmes generally means nobody on the loan has owned a home in the last three years — a broader definition than people assume, and one that catches plenty of former owners who have been renting.

Down payment options

Gift funds are allowed on a primary residence, and on many programmes the entire down payment may be gifted. The gift must be properly documented with a letter and a paper trail.

PMI, and how to remove it

Private mortgage insurance is required whenever your loan-to-value exceeds 80%. It protects the lender, not you, and it is priced as an annual percentage of the loan balance, charged monthly.

Unlike FHA's mortgage insurance premium, PMI goes away. There are four routes:

1. Automatic termination. The servicer must cancel PMI automatically when your balance reaches 78% of the original value, based on the original amortisation schedule, provided you are current.
2. Borrower-requested cancellation. You can request cancellation at 80% of original value. This is earlier than the automatic point, and it will not happen unless you ask.
3. Cancellation on current value. If your home has appreciated, many investors allow cancellation based on a new appraisal once you hold sufficient equity, subject to seasoning requirements. In an appreciating South Florida market this is often the fastest route — and almost nobody does it, because nobody tells them.
4. Refinance. Worth it only if the new rate justifies it.

There are also alternatives to monthly PMI: lender-paid PMI (a higher rate instead of a monthly premium — cheaper short-term, permanent long-term, since it cannot be cancelled) and single-premium PMI (paid up front, often by a seller concession). Both can make sense in specific situations; neither is a default.

Why credit score matters so much here

This is the biggest practical difference from FHA. On an FHA loan, mortgage insurance costs the same whether your score is 580 or 780. On a conventional loan, both your interest rate and your PMI are priced on your credit score, in tiers.

The gap between a 660 and a 760 score on the same loan can be substantial once you combine a higher rate with a higher PMI factor — often enough to change what you can comfortably afford. The tiers typically step at 660, 680, 700, 720, 740 and 760.

If you are within 20 points of a tier boundary, it is usually worth spending a couple of months getting there before you buy. Paying down revolving balances is the fastest lever — utilisation updates monthly, unlike most other credit factors.

Conforming limits and jumbo loans

Fannie Mae and Freddie Mac set a maximum loan amount, revised annually, above which a loan becomes jumbo (non-conforming). Jumbo loans are still conventional, but they follow the individual lender's own rules rather than agency guidelines — typically meaning a larger down payment, higher credit score requirements and more reserves.

Because the limit changes each year, and because certain high-cost areas get a higher figure, check the current conforming limit for Miami-Dade or Broward with your lender rather than relying on a printed number.

One useful structure when you are slightly over the limit is a piggyback: a first mortgage at the conforming limit plus a second lien, which keeps you in conforming pricing and can also avoid PMI. Whether it beats a single jumbo loan depends on the pricing of the day.

Condos and warrantability

Conventional lending on a condominium requires the project to be warrantable — meeting Fannie Mae and Freddie Mac's standards on owner-occupancy ratio, delinquent dues, single-entity ownership, commercial space, litigation and, increasingly important in Florida, reserve funding and deferred maintenance.

Since the post-Surfside reforms, agency scrutiny of Florida condominium projects has tightened significantly. Buildings with deferred structural maintenance, incomplete milestone inspections or inadequate reserves can end up ineligible — sometimes suddenly, and sometimes mid-transaction.

The warrantable pool is still considerably broader than the FHA or VA approved lists, which is a large part of why conventional is the practical choice for most South Florida condo buyers. Non-warrantable condo loans exist through portfolio lenders, at higher rates and with larger down payments.

Second homes and investment property

Conventional is the only one of the three main programmes that will finance a property you do not live in. Expect:

• Second homes — typically 10% down minimum, with pricing adjustments
• Investment property — typically 15% down for one unit, more for multi-unit, with significant rate adjustments and reserve requirements
• Projected rental income may be usable toward qualifying, usually at a discount

For investment purchases in South Florida, check the association's leasing rules before you go far. Minimum lease terms and post-purchase waiting periods are common here and can invalidate the entire plan.

Who conventional suits

Good fit if:

• Your credit is 680 or above
• You can put down 5% or more
• You want mortgage insurance that eventually goes away
• You are buying a condo — the warrantable pool is much larger
• You are competing in multiple-offer situations
• You are buying a second home or an investment property
• The property has cosmetic issues that FHA or VA appraisers would flag

Consider alternatives if:

• You are VA eligible — VA is nearly always better
• Your credit is below about 660 — FHA is often cheaper overall
• Your debt-to-income is above what conventional will accept
• You need the most flexible possible treatment of a recent bankruptcy or foreclosure

General information only, not a loan commitment, a quote, or financial advice. Agency guidelines, conforming limits, PMI pricing and lender overlays change — confirm current terms with a licensed mortgage lender before making any decision.