Conventional Loan – Client Call Reference

🏠 Conventional Loan — Client Call Reference

Henry | Own It Group | Live Call Guide🧮 Nova Calculator 🎙️ Noota

Conventional Loan Eligibility

🏦 What is a Conventional Loan? A conventional loan is NOT backed by the government — it's funded by private lenders and typically sold to Fannie Mae or Freddie Mac. Because there's no government guarantee, lenders hold borrowers to stricter standards. The reward: no mandatory mortgage insurance with 20% down, lower overall costs for strong borrowers, and no loan limit restrictions (with jumbo loans).

Credit Score Requirements

Credit Score	Down Payment	PMI Required?	Rate Impact
740+	As low as 3%	Yes (if <20%)	Best rates available
720–739	As low as 3%	Yes (if <20%)	Excellent rates
700–719	As low as 3%	Yes (if <20%)	Good rates, slight bump
680–699	As low as 3%	Yes (if <20%)	Moderate rate bump
660–679	As low as 5%	Yes	Noticeable rate increase
620–659	As low as 5%	Yes	High rates — FHA may be better
Below 620	Does not qualify for conventional — consider FHA

Down Payment Options

3% down: Fannie Mae HomeReady or Freddie Mac Home Possible (income limits apply)
5% down: Standard conventional, no income limits
10% down: Reduces PMI cost significantly
20% down: No PMI required — the sweet spot for strong buyers
Gift funds allowed (restrictions apply — cannot be entire down payment in some cases)

Key Eligibility Requirements

Minimum 620 credit score (most lenders; some require 640–660)
DTI typically under 43–45% (up to 50% with strong compensating factors via AUS)
Stable 2-year employment history
Property can be primary, secondary, or investment (unlike FHA/VA)
Loan within conforming limits: $766,550 (most areas); $1,149,825 (high-cost)
Bankruptcy: 4 years post Chapter 7, 2 years post Chapter 13 discharge
Foreclosure: 7 years (3 years with extenuating circumstances)

Loan Types Under Conventional

Conforming: Within Fannie/Freddie limits — best rates, most common
Jumbo: Above conforming limits — stricter requirements, higher down payment (typically 10–20%)
HomeReady (Fannie): 3% down, income limits, reduced PMI, homebuyer education required
Home Possible (Freddie): 3% down, income limits, similar to HomeReady
Fixed Rate: 30-year, 20-year, 15-year, 10-year — payment never changes
ARM (Adjustable Rate): Lower initial rate, adjusts after fixed period (5/1, 7/1, 10/1)

Questions to Ask Your Client

💳 Credit & Financial Profile

What is your current credit score? (All 3 bureaus if possible)
Have you had any late payments, collections, or derogatory items in the last 2–4 years?
Have you ever had a bankruptcy or foreclosure? If so, when?
Do you have any large outstanding debts — student loans, car loans, credit cards?
What are your total monthly debt payments right now?

💰 Income & Employment

Are you a W-2 employee, self-employed, or retired?
How long have you been with your current employer or in your field?
What is your gross monthly income (before taxes)?
Do you receive any bonus, commission, or overtime income? How long have you received it?
If self-employed: how many years in business and do you show strong net income on your taxes?
Do you have rental income from other properties?

🏠 Property & Purchase Goals

Is this a primary residence, second home, or investment property?
What purchase price range are you targeting?
What area are you looking in? (Need to confirm conforming loan limits)
Is this a purchase or refinance?
If refinance: what is the current loan balance and estimated home value?
Are you looking for a fixed rate or open to an ARM?
What is your target closing timeline?

🏦 Down Payment & Assets

How much are you planning to put down?
Do you have 20% available, or will you need to work with PMI?
Where are your funds — savings, investments, 401k, sale of another home?
Do you have reserves after closing? (Lenders want 2–6 months PITI in savings)
Are any funds coming from a gift? (Restrictions apply for conventional)

Conventional Loan Benefits — How to Explain Them

Position conventional as the premium product for qualified buyers.

🚫🛡️

No PMI with 20% DownPut 20% down and there's zero mortgage insurance — ever. This is the biggest advantage conventional has over FHA (which has lifetime MIP). On a $400,000 loan, that's $180–$300/month in savings from day one.

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PMI Automatically Drops at 20% EquityEven if you start with PMI, it's not permanent. By law (Homeowners Protection Act), PMI must be cancelled when you reach 20% equity — either through payments or appreciation. You can also request removal at 20% or it auto-cancels at 22%. FHA MIP doesn't have this benefit.

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Buy More Than a Primary ResidenceUnlike FHA and VA, conventional loans work for primary homes, second homes, AND investment properties. This makes conventional the go-to for real estate investors and buyers with vacation homes.

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Lower Overall Cost for Strong BorrowersWith a 720+ credit score and 20% down, conventional almost always beats FHA on total cost — no UFMIP, lower PMI rates (if any), and often a competitive interest rate. The "stronger" your financial profile, the more conventional rewards you.

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Flexible Property TypesConventional is less strict on property condition than FHA or VA. Fixer-uppers, unique properties, condos, and homes with minor defects are more likely to pass a conventional appraisal. Also works for manufactured homes (with restrictions).

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Higher Loan Amounts with JumboNeed more than the conforming limit? Conventional jumbo loans go well above $766,550 with no hard ceiling (subject to lender guidelines). For luxury buyers or high-cost markets, this is often the only option.

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Multiple Term Options30-year, 20-year, 15-year, or 10-year fixed — plus ARM options (5/1, 7/1, 10/1). Clients can choose to minimize their payment or minimize their total interest paid. More flexibility than government loans.

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HomeReady & Home Possible — 3% Down ProgramsFannie Mae's HomeReady and Freddie Mac's Home Possible allow 3% down with reduced PMI rates and more flexible income guidelines. Great for moderate-income first-time buyers who have good credit but limited savings.

Conventional Loan Terminology

Know these inside and out — conventional borrowers are often more financially savvy and will ask sharp questions.

Conforming Loan

A conventional loan that falls within Fannie Mae / Freddie Mac loan limits ($766,550 in most areas for 2024). These loans can be sold on the secondary market, giving lenders liquidity and allowing them to offer competitive rates.

Non-Conforming / Jumbo Loan

A conventional loan above the conforming limit. Because Fannie/Freddie won't buy them, lenders hold them in portfolio — requiring stricter credit, higher down payments (10–20%), and often higher rates.

Fannie Mae / Freddie Mac

Government-Sponsored Enterprises (GSEs) that buy conforming conventional loans from lenders, freeing up capital so lenders can make more loans. They set the underwriting guidelines most lenders follow.

PMI — Private Mortgage Insurance

Required on conventional loans with less than 20% down. Cost typically 0.2%–1.5% of the loan per year depending on credit score and LTV. Cancels automatically at 22% equity (78% LTV) or on request at 20%.

LTV — Loan-to-Value Ratio

Loan amount ÷ appraised value. Example: $320,000 loan on a $400,000 home = 80% LTV. At 80% LTV (20% down), PMI is not required. The lower the LTV, the better the rate and terms.

LLPA — Loan Level Price Adjustment

Fannie/Freddie's risk-based pricing adjustments that increase the effective interest rate based on credit score, LTV, property type, and loan purpose. The lower your score or the higher your LTV, the more you pay in LLPAs.

DTI — Debt-to-Income Ratio

Total monthly debts (including new mortgage) ÷ gross monthly income. Conventional max is typically 43–45%, though AUS (automated underwriting) can approve up to 50% with strong compensating factors.

AUS — Automated Underwriting System

Fannie Mae's Desktop Underwriter (DU) or Freddie Mac's Loan Product Advisor (LPA). These systems analyze the full loan file and issue Approve/Eligible or Refer findings — guiding the underwriter on risk and conditions.

HomeReady (Fannie Mae)

A 3%-down conventional program for low-to-moderate income borrowers (income limit: 80% of Area Median Income). Features reduced PMI, flexible income sources (boarder income, roommates), and homebuyer education requirement.

Home Possible (Freddie Mac)

Freddie Mac's version of HomeReady — 3% down, income limits, reduced PMI costs. Both programs are designed to compete with FHA for moderate-income buyers who have good credit.

ARM — Adjustable Rate Mortgage

A loan with a fixed rate for an initial period (5, 7, or 10 years) that then adjusts annually based on a market index. Lower initial rate than fixed — good for buyers who plan to sell or refinance before adjustment. Has rate caps limiting how much it can increase.

Reserves

Assets left over after closing and down payment. Conventional loans typically require 2 months of PITI (principal, interest, taxes, insurance) in reserves. Investment properties often require 6 months. Retirement accounts count at 60–70% of value.

Rate Buydown

Paying discount points upfront to lower the interest rate. 1 point = 1% of loan amount = roughly 0.25% rate reduction. Good for buyers staying long-term. Calculate break-even: upfront cost ÷ monthly savings = months to break even.

Seller Concessions

Conventional limits: 3% of purchase price if LTV >90%; 6% if LTV 75–90%; 9% if LTV <75%. Lower limits than FHA (6%) for high-LTV loans, but more generous for well-qualified buyers.

Primary / Second Home / Investment

Conventional loans work for all three. Primary: best rates, lowest down (3–5%). Second home: slightly higher rate, 10% min down. Investment: higher rate, 15–25% down required, tougher DTI standards.

Appraisal Waiver / PIW

Fannie/Freddie's AUS sometimes issues a Property Inspection Waiver — skipping the full appraisal for low-risk loans with significant equity. Saves $500–$800 and speeds up closing. Available for refinances and some purchases.

Conventional Loan Process — Step by Step

Walk your client through every stage so nothing comes as a surprise.

Pre-ApprovalPull tri-merge credit report, verify income and assets, run AUS (DU or LPA). Confirm conforming vs. jumbo. Check if HomeReady/Home Possible apply. Issue pre-approval letter with max purchase price. This is the foundation — get this right before they start shopping.

Home Search & OfferClient works with agent to find a home. Conventional appraisals are less strict on property condition than FHA/VA — fixer-uppers and unique properties are more viable. Seller concessions negotiated (up to 3–9% depending on LTV).

Loan Application & DisclosuresFull 1003 application completed. Loan Estimate (LE) issued within 3 business days of application. Client acknowledges disclosures. Rate can be locked here or after appraisal — discuss timing strategy.

AppraisalConventional appraisal focuses primarily on value — not condition to the same degree as FHA/VA. However, safety hazards and major defects will still be flagged. Fannie/Freddie's AUS may issue an appraisal waiver on low-risk loans.

UnderwritingFile reviewed against AUS findings. Underwriter issues Approval with conditions, Suspense (more info needed), or Denial. Common conditions: updated pay stubs, bank statements, explanation letters, proof of insurance. Respond to conditions fast — every day counts.

Clear to Close (CTC)All conditions satisfied. Final loan approval issued. Closing Disclosure sent at least 3 business days before closing. Confirm final numbers — rate, payment, PMI amount (if applicable), closing costs.

ClosingClient signs documents, wires down payment and closing costs. No upfront insurance fee (unlike FHA's UFMIP or VA's funding fee). PMI begins if applicable. Keys handed over. 🎉

⏱ Typical Timeline

Pre-approval: Same day – 2 days | Contract to Close: 21–45 days | Appraisal: 5–10 days | Underwriting: 3–10 days

Conventional can close faster than FHA/VA — no government-ordered appraisal queue, no COE delays, and appraisal waivers are sometimes granted. Well-organized files can close in 21–25 days.

Call Scripts & Talking Points

Opening the Call

You say: "Hey [Name], great to connect. So you're looking at a conventional loan — that's typically the gold standard for buyers with solid credit and some savings. No government red tape, more flexibility on property types, and if you put 20% down, you skip mortgage insurance entirely. Let me ask you a few questions and see if conventional is the right fit, or if there's another program that might serve you better."

Explaining Credit Score Impact

You say: "With conventional loans, your credit score has a bigger impact on your rate than with government loans. Above 740, you get the absolute best pricing. Between 680 and 740, it's still solid but you'll see a small rate bump. Below 680, FHA starts to look more competitive because FHA doesn't penalize you as heavily for a lower score. What's your score range? That helps me figure out which direction saves you the most money."

On PMI

You say: "If you're putting down less than 20%, you'll have PMI — private mortgage insurance. The good news is it's temporary. Once you hit 20% equity — either through your payments or your home going up in value — you can get it removed. That's a big difference from FHA, where the mortgage insurance can last the life of the loan. So with conventional, there's a clear path to eliminating that extra cost."

Comparing Conventional vs. FHA for This Client

You say: "Let me run both options for you. At your credit score and down payment, here's the honest breakdown: conventional gives you [X rate] with [PMI/no PMI]. FHA gives you [Y rate] plus MIP that stays for the life of the loan. In most cases for buyers with strong credit, conventional wins — but I always want to show you both numbers before we decide."

For the Second Home / Investment Property Buyer

You say: "Since this is a [second home / investment property], conventional is really your only option — FHA and VA require owner-occupancy. For a second home we're looking at a minimum 10% down. For an investment property it's 15–25% down. Rates will be a bit higher than on a primary residence, but the numbers still make sense for most investors. What's your expected rental income going to be?"

Closing the Call / Next Steps

You say: "Here's what I'd like to do — let me get you pre-approved so you have a real number to shop with. Conventional can often close faster than government loans, so once you find a home you want to move quickly. I'll need a few documents from you. I'll also run you through Desktop Underwriter so we catch any issues before you're under contract. Sound good?"

Common Objections & How to Handle Them

"My credit score is around 650 — can I still get a conventional loan?"

Technically yes — the minimum is 620 — but at 650 the rate and PMI cost on a conventional loan gets expensive. At that score, FHA might actually be the smarter play for you. FHA doesn't penalize lower scores as heavily, and the rate will likely be better. Let me run both side by side so you can see the actual payment difference. We can also look at what it would take to get your score to 680 in the next couple months — that crossover point makes a real difference.

"I don't have 20% down. Is conventional even worth it?"

Absolutely — you don't need 20%. You can go conventional with as little as 3–5% down. You'll pay PMI, but it's temporary, which is a key advantage over FHA. Once you reach 20% equity through payments or appreciation, PMI goes away. With FHA you're often stuck with MIP for the life of the loan. So even with a smaller down payment, conventional can win long-term — especially if your credit is solid.

"I heard conventional is harder to qualify for."

It has stricter minimums, yes — minimum 620 credit score vs. 500 for FHA. But "harder" depends on your profile. If you have good credit and stable income, conventional is often smoother and faster — no government appraisal requirements, no case numbers to order, and sometimes we get an appraisal waiver and skip that step entirely. For buyers with strong credit, conventional is actually the easier and cheaper path.

"I'm buying a rental property — what are my options?"

Conventional is your primary option for investment properties — FHA and VA require you to live in the home. For a single-family rental you'll need 15% down minimum, and for 2–4 units it's 20–25%. Rates will be slightly higher than a primary residence — typically 0.5–0.75% higher. But the rental income can help offset that. We can also look at DSCR loans if you want to qualify based on the property's income alone rather than your personal income.

"Rates are high right now. Should I even buy?"

That's a fair question and I want to give you an honest answer. Rates are higher than they were a few years ago, but home prices in most markets have held firm — meaning waiting hasn't helped buyers who were hoping for both lower rates AND lower prices. Here's my take: if the payment works for you today, you buy now and refinance when rates drop. There's even a strategy called a 2-1 buydown or rate buydown where we can lower your rate for the first couple years. Let me show you what that looks like with real numbers for your situation.

"I'm self-employed. Will I qualify?"

Yes, and self-employed borrowers do it every day — but we have to document it correctly. Conventional requires 2 years of self-employment history and uses your net income from your tax returns (after business deductions). The challenge is that many self-employed borrowers write off a lot of expenses, which lowers the qualifying income. If that's your situation, we can look at bank statement loans or other non-QM options that use actual deposits instead of tax returns. Tell me more about how your income looks on paper.

Conventional vs. FHA vs. VA vs. Jumbo — At a Glance

Help your client see where conventional fits in the full picture.

Feature	Conventional YOUR CLIENT	FHA	VA	Jumbo (Conv.)
Min. Down Payment	3% (HomeReady/Possible)	3.5%	0%	10–20%
Min. Credit Score	620 (best pricing 740+)	500 (580 for 3.5% down)	No min (~580 lender)	700–720+
Mortgage Insurance	PMI — drops at 20% equity	MIP — life of loan (<10% down)	None — ever	PMI or none (varies)
Upfront Fee	None	1.75% UFMIP	1.25–3.3% funding fee	None
Property Types	Primary, 2nd home, investment	Primary only	Primary only	Primary, 2nd home, investment
Loan Limit	$766,550 conforming	$498,257–$1,149,825	No limit (full entitlement)	No hard limit
Seller Concessions	3–9% (depends on LTV)	Up to 6%	Up to 4%	2–6% (varies)
Property Condition	Most flexible	Strict HUD MPS	Must meet VA MPRs	Most flexible
Closing Speed	Fastest (21–30 days typical)	30–45 days	30–45 days	30–45 days
Who Qualifies	Anyone (strong credit)	Anyone (all credit ranges)	Veterans / Active Duty only	High-income/high-credit

💡 When Conventional Wins Conventional is the best choice when: credit score is 680+, putting 20%+ down, buying a second home or investment property, wanting faster closing, or wanting PMI that can be removed. FHA wins when credit is below 680 or down payment is minimal. VA wins for all eligible veterans — no contest.