A conventional loan is a mortgage that is not insured or guaranteed by a federal government agency, such as the Federal Housing Administration (FHA) or Department of Veterans Affairs (VA).
Many conventional mortgages follow guidelines established by Fannie Mae and Freddie Mac, two organizations that purchase qualifying mortgages from lenders.
Conventional loans are popular among Michigan homebuyers because they offer flexible down payment options, competitive financing, and the ability to finance different types of properties.
You do not need to be a first-time homebuyer or have 20% saved for a down payment to qualify for a conventional loan.
Conventional mortgages offer several advantages for qualified homebuyers.
Our team can help you compare these benefits and determine whether conventional financing is the right fit for your situation.
Conventional loan requirements vary depending on the loan program, lender, and borrower qualifications.
Lenders generally evaluate your credit history, income, employment, existing debts, down payment, and the property being financed.
Many conventional mortgage programs use a credit score of 620 as a common qualifying benchmark, although some programs and automated underwriting systems may have different eligibility criteria.
Your credit score can also influence your interest rate, mortgage insurance costs, and available loan options.
Having a higher credit score may help you qualify for more favorable financing, but your credit score is only one part of the approval process.
One of the biggest misconceptions about conventional loans is that buyers must make a 20% down payment.
In reality, qualified borrowers may be eligible for conventional financing with as little as 3% down.
Here’s what that could look like:
| Home Purchase Price | 3% Down Payment | 5% Down Payment |
|---|---|---|
| $200,000 | $6,000 | $10,000 |
| $250,000 | $7,500 | $12,500 |
| $300,000 | $9,000 | $15,000 |
| $350,000 | $10,500 | $17,500 |
These examples reflect down payments only. Closing costs, prepaid expenses, and other costs may also apply.
Not all borrowers or property types qualify for the minimum down payment options.
While a larger down payment may help reduce your monthly payment and mortgage insurance costs, it isn’t always necessary to wait until you’ve saved 20%.
Conventional loans do not have a universal minimum income requirement.
Instead, lenders review your qualifying income, employment history, and financial obligations to determine whether you can reasonably afford the mortgage.
Eligible income sources may include employment, self-employment, retirement income, and other acceptable sources.
Some conventional loan programs have income limits, particularly those designed to assist low- to moderate-income homebuyers.
Your debt-to-income ratio (DTI) compares your monthly debt payments to your qualifying monthly income.
Conventional lenders use this calculation to evaluate how comfortably you may be able to manage a mortgage alongside your other financial obligations.
Allowable debt-to-income ratios depend on the loan program, underwriting findings, and your overall financial profile.
Conventional loans may be used to finance several types of eligible properties, including:
Property eligibility, occupancy requirements, and down payment minimums vary by program.
No. You do not need a 20% down payment to qualify for many conventional mortgage programs.
Some eligible borrowers can purchase a primary residence with as little as 3% down, while others may qualify for financing with 5% or more down.
A 20% down payment can offer advantages, including avoiding private mortgage insurance on many conventional loans and reducing the amount borrowed.
However, putting 20% down isn’t necessarily the best financial decision for every buyer.
You may prefer to keep some savings available for moving expenses, home improvements, emergencies, or other financial goals.
At Michigan Mortgage, we can compare different down payment scenarios to help you understand how each option affects your monthly payment and upfront costs.
Conventional loans generally require private mortgage insurance (PMI) when a borrower makes a down payment of less than 20%.
PMI protects the lender if the borrower defaults on the mortgage.
The cost of PMI varies based on factors such as:
Unlike FHA mortgage insurance, borrower-paid PMI on many conventional loans can eventually be removed without refinancing.
For many qualifying conventional mortgages on a primary residence, homeowners may request PMI cancellation when their principal balance reaches 80% of the home’s original value, provided applicable requirements are met.
PMI generally terminates automatically when the loan is scheduled to reach 78% of the original value, assuming the borrower is current on payments and other applicable conditions are satisfied.
Additional cancellation options may be available based on property appreciation, loan type, and investor or servicer requirements.
Your mortgage servicer can explain the requirements that apply to your loan.
Conforming conventional loan limits are established annually by the Federal Housing Finance Agency (FHFA).
For 2026, the baseline conforming loan limit for a one-unit property in Michigan is $832,750.
Higher limits apply to eligible two- to four-unit properties.
Loans exceeding applicable conforming limits may require jumbo financing or another loan program.
Because these limits are updated annually, our team can help you verify the current guidelines when you’re ready to purchase or refinance.
Conventional and FHA loans can both be excellent options for Michigan homebuyers, but their requirements and costs differ.
| Feature | Conventional Loan | FHA Loan |
|---|---|---|
| Minimum Down Payment | As low as 3% for eligible borrowers | As low as 3.5% for qualified borrowers |
| Credit Requirements | Vary by program; stronger credit may offer better pricing | Generally more flexible for lower credit scores |
| Mortgage Insurance | Typically required with less than 20% down | Required on standard FHA loans |
| Insurance Removal | Borrower-paid PMI may be removable | Depends on FHA loan terms |
| First-Time Buyer Required | No, although certain programs have restrictions | No |
| Property Options | Primary residences, second homes, and investment properties | Generally primary residences |
| Loan Limits | Conforming limits apply to eligible loans | FHA limits vary by county |
A conventional loan may be a good fit if you have stronger credit, want the possibility of removing mortgage insurance, or plan to purchase a second home or investment property.
An FHA loan may be a good fit if you need more flexibility with credit qualifications or certain financial circumstances.
The right mortgage depends on your qualifications, financial goals, and the overall cost of each option.
Our Loan Officers can compare both programs to help you make an informed decision.
Yes. Certain conventional loan programs may be combined with eligible down payment assistance.
Programs offered through the Michigan State Housing Development Authority (MSHDA) and other qualifying organizations may help eligible buyers cover a portion of their down payment or closing costs.
Requirements vary and may include income limits, purchase price limits, homebuyer education, and other eligibility criteria.
Not every conventional loan is eligible for every assistance program.
A Michigan Mortgage Loan Officer can help you explore the options available for your situation.
Yes. One advantage of conventional financing is that eligible borrowers may use it to purchase more than a primary residence.
Conventional loans may be available for vacation homes, second homes, and investment properties, including certain rental properties.
These loans generally have different qualification requirements, down payment minimums, and pricing than mortgages for primary residences.
If you’re considering purchasing a second home or investment property in Michigan, our team can help you understand the financing options.
Some conventional mortgage programs allow qualified borrowers to purchase a primary residence with as little as 3% down. Other programs require 5% or more, depending on borrower qualifications and property type.
A credit score of 620 is a common benchmark for many conventional loan programs, but requirements vary. Some automated underwriting programs may evaluate borrowers differently, and lenders may establish additional qualifications.
It depends on your financial situation. Conventional financing may offer advantages for borrowers with stronger credit, while FHA loans may provide more flexibility for certain borrowers. Comparing interest rates, mortgage insurance, closing costs, and long-term expenses can help determine which option is better.
Yes. Many qualified borrowers can purchase a primary residence with a 5% down payment. Some programs also offer down payments as low as 3%.
Yes. Conventional loans are available to qualified first-time and repeat homebuyers. Certain programs also offer special features designed to help eligible first-time buyers.
Yes. Gift funds from eligible donors may be used for down payments and closing costs on qualifying conventional loans. The rules depend on the loan program, property type, and other requirements.
Yes. Student loan debt does not automatically prevent you from qualifying. Your lender will evaluate your student loan obligations as part of your debt-to-income ratio using applicable underwriting guidelines.
Standard conventional loans generally do not have income limits. However, certain affordable mortgage programs, such as HomeReady, have income eligibility requirements.
In many cases, yes. Borrower-paid PMI may be canceled when applicable loan balance, payment history, and other requirements are met. Some conventional loans also provide additional cancellation options based on property value.
Yes, if you qualify. Refinancing from an FHA loan into a conventional mortgage may help some homeowners change their loan terms or eliminate FHA mortgage insurance. Refinancing involves closing costs and new qualification requirements, so it’s important to compare the potential benefits and expenses.
Choosing the right mortgage is about more than finding a loan you qualify for. It’s about understanding your options and choosing financing that supports your financial goals.
Whether you’re buying your first home, moving into your next home, or considering a second property, Michigan Mortgage is here to help.
Our local Loan Officers serve homebuyers throughout West Michigan, including Muskegon, Grand Haven, Spring Lake, Holland, Grand Rapids, and surrounding communities.
Wondering if a conventional loan is right for you?
Let’s compare your options and find a mortgage that works for you.
