Conventional loans are among the most widely used mortgage options available. They can be used to finance a primary residence, second home, or investment property and offer options for both first-time and repeat homebuyers.
Depending on the loan program and borrower qualifications, conventional financing may allow a down payment as low as 3%.
Fairhope Mortgage helps borrowers compare conventional loan options based on credit, income, down payment, property type, occupancy, and long-term financial goals.
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Minimum Down Payment
As little as 3% for qualifying borrowers and transactions.
Mortgage Insurance
Private Mortgage Insurance (PMI) is generally required when financing more than 80% of the home's value, subject to program requirements.
Primary Residence
Available.
Second Homes
Available for qualifying properties and borrowers.
Investment Properties
Available with additional down-payment and underwriting requirements.
Property Types
Eligible single-family homes, condominiums, planned-unit developments, 2–4 unit properties, and qualifying manufactured homes.
Loan Terms
Fixed-rate and adjustable-rate options may be available.
Loan Limits
Conforming loan limits are established annually by the Federal Housing Finance Agency (FHFA).
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A conventional mortgage is a home loan that is not insured or guaranteed by a government agency such as the Federal Housing Administration (FHA), Department of Veterans Affairs (VA), or U.S. Department of Agriculture (USDA).
Many conventional mortgages are originated according to guidelines established by Fannie Mae or Freddie Mac. Loans meeting applicable requirements and loan limits are commonly referred to as conforming conventional loans.
Conventional financing can be used for a broad range of borrowers and properties, making it an important option to consider when purchasing or refinancing real estate.
Unlike FHA financing, conventional loans aren't limited to primary residences. Depending on the transaction and borrower qualifications, conventional financing can also be used for second homes and investment properties.
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The minimum down payment depends on the borrower, occupancy, property type, loan program, and underwriting findings.
Some qualified borrowers purchasing a one-unit primary residence may be eligible for conventional financing with as little as 3% down.
Other transactions may require a larger down payment.
$200,000 Purchase Price
3% Down Payment: $6,000
Approximate Loan Amount: $194,000
$250,000 Purchase Price
3% Down Payment: $7,500
Approximate Loan Amount: $242,500
$300,000 Purchase Price
3% Down Payment: $9,000
Approximate Loan Amount: $291,000
$350,000 Purchase Price
3% Down Payment: $10,500
Approximate Loan Amount: $339,500
$400,000 Purchase Price
3% Down Payment: $12,000
Approximate Loan Amount: $388,000
$500,000 Purchase Price
3% Down Payment: $15,000
Approximate Loan Amount: $485,000
These examples illustrate down payment only. Closing costs, prepaid expenses, escrow requirements, mortgage insurance, and other expenses may affect the actual amount needed at closing.
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Several conventional programs can provide financing up to 97% loan-to-value for qualifying borrowers and transactions.
These can include programs such as Fannie Mae HomeReady and Freddie Mac Home Possible, as well as other eligible conventional 97% LTV transactions.
Eligibility varies by program.
Some programs have income limits, first-time homebuyer requirements, homeownership education requirements, property restrictions, or other eligibility standards.
A 3% down conventional loan is therefore not one single mortgage program. The borrower's complete scenario must be evaluated to determine which conventional option is available.
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There isn't one credit score that guarantees conventional mortgage approval.
Credit requirements depend on the specific program, underwriting method, loan-to-value ratio, property type, occupancy, debt-to-income ratio, credit history, and other risk factors.
Most conventional loans are evaluated through an automated underwriting system such as Fannie Mae's Desktop Underwriter (DU) or Freddie Mac's Loan Product Advisor (LPA).
The underwriting recommendation considers more than the borrower's credit score alone.
A higher credit score can potentially provide advantages, including better pricing and lower private mortgage insurance costs when PMI is required.
Borrowers with lower credit scores shouldn't automatically assume FHA is their only option. Comparing FHA and conventional financing can determine which provides the better combination of payment, cash required, mortgage insurance, and overall costs for the individual borrower.
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Debt-to-income ratio, commonly called DTI, compares a borrower's qualifying monthly debt obligations with qualifying monthly income.
There isn't one DTI limit that accurately describes every conventional mortgage approval.
Automated underwriting evaluates the borrower's complete risk profile, including income, assets, credit, down payment, property, reserves, and other factors.
Because of this, two borrowers with the same debt-to-income ratio may receive different underwriting results.
The best way to determine eligibility is to evaluate the complete mortgage application rather than relying on a generic DTI number found online. However, the absolute maximum DTI is 50%.
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Private Mortgage Insurance is commonly required on a conventional mortgage when the loan-to-value ratio exceeds 80%.
PMI protects the lender against certain losses if the borrower defaults. It is not homeowners insurance and doesn't replace hazard, wind, flood, or other property insurance.
The cost of PMI can vary based on factors such as:
Credit score
Loan-to-value ratio
Loan amount
Property type
Occupancy
Number of borrowers
Mortgage insurance coverage requirements
One important difference between conventional and FHA financing is that conventional PMI may eventually be removable when applicable requirements are satisfied.
That can make conventional financing particularly attractive to borrowers who expect to build equity over time.
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Yes. Gift funds may be permitted on qualifying conventional transactions.
For eligible primary residences and second homes, Fannie Mae permits personal gift funds from acceptable donors to be used for some or all of the down payment, closing costs, or financial reserves, subject to applicable requirements.
Gift funds aren't permitted for Fannie Mae investment-property transactions.
The donor and transfer of funds must meet applicable documentation requirements.
Potential acceptable donors can include qualifying relatives and certain other eligible individuals as defined by the applicable conventional guidelines.
Ask Fairhope Mortgage about the specific gift requirements for your transaction before moving funds.
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Yes. Conventional financing permits seller and other interested-party contributions toward eligible closing costs, but the maximum amount depends on the transaction.
For Fannie Mae conventional financing, current maximum financing concessions for a primary residence or second home generally include:
More Than 90% LTV
Up to 3%
75.01%–90% LTV
Up to 6%
75% LTV or Less
Up to 9%
Investment Property
Up to 2%, regardless of LTV
The contribution can't exceed the borrower's actual eligible closing costs.
Seller contributions generally cannot be used to satisfy the borrower's required down payment or reserve requirement.
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Here is a simplified conventional purchase example.
Purchase Price
$300,000
5% Down Payment
$15,000
Approximate Loan Amount
$285,000
Loan-to-Value Ratio
95%
Because the loan is above 80% LTV, private mortgage insurance would generally be required.
The borrower would also need to account for applicable closing costs, prepaid property taxes, homeowners insurance, escrow deposits, and other transaction expenses.
Depending on the transaction, eligible seller contributions, lender credits, gift funds, or qualifying assistance programs may help with some of these expenses.
This example is for educational purposes only and isn't a Loan Estimate or offer of credit.
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Conventional financing can be an excellent option to evaluate for first-time homebuyers.
Some qualifying borrowers may be able to purchase with as little as 3% down.
Programs such as Fannie Mae HomeReady and Freddie Mac Home Possible can also provide additional flexibility for qualifying borrowers.
Depending on the specific program, features can include lower down-payment requirements, flexible sources of funds, and other affordability features.
You don't necessarily need a 20% down payment to obtain a conventional mortgage.
EXPLORE FIRST-TIME HOMEBUYER OPTIONS
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HomeReady is Fannie Mae's conventional community lending mortgage designed to provide additional financing flexibility to qualifying borrowers.
HomeReady can provide financing up to 97% LTV for eligible one-unit primary-residence transactions when applicable requirements are satisfied.
Income limits and other program requirements apply.
HomeReady can also provide flexibility involving eligible gift funds, grants, and certain other sources of funds.
HomeReady is not restricted exclusively to first-time homebuyers.
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Home Possible is Freddie Mac's affordable conventional mortgage option for qualifying borrowers.
Eligible one-unit primary residences can potentially be financed up to 97% LTV, subject to program requirements.
Income limits and other eligibility requirements apply.
Home Possible can provide flexible sources of funds and may be particularly useful for borrowers who have sufficient income to qualify for a mortgage but limited funds available for a large down payment.
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Potentially, yes.
Qualifying conventional mortgages can be combined with eligible grants, subordinate financing, Community Seconds, Affordable Seconds, and other approved down-payment-assistance programs when applicable requirements are satisfied.
The assistance program and first mortgage must be compatible.
Fairhope Mortgage can evaluate available conventional and down-payment-assistance options to determine which combinations may be available for your transaction.
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Conventional financing can be used to purchase qualifying second homes.
This is particularly relevant for buyers considering vacation and second-home properties in markets such as Gulf Shores, Orange Beach, Pensacola, and other Gulf Coast communities.
Second-home transactions have different occupancy, property, down-payment, reserve, and underwriting requirements than primary residences.
A property must satisfy the applicable second-home requirements to receive second-home financing. Simply calling a property a vacation home doesn't automatically make it eligible for second-home treatment.
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Conventional financing can also be used to purchase or refinance qualifying investment properties.
Investment-property loans generally have different requirements than primary-residence financing, including potentially larger down payments, reserve requirements, pricing adjustments, and rental-income documentation.
Conventional investment financing can be particularly useful for borrowers who qualify using their personal income and want traditional long-term mortgage financing.
Real estate investors who prefer qualification based primarily on the property's rental income may also want to explore a DSCR loan.
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Conventional financing may be available for eligible duplexes, triplexes, and four-unit properties.
These properties can be particularly interesting for buyers who want to occupy one unit while renting the others.
Depending on the transaction and program, qualifying rental income from the other units may be considered when calculating mortgage qualification.
Requirements differ based on the number of units, occupancy, loan program, LTV, and underwriting findings.
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Conventional financing can be an important option for condominium purchases, particularly in Gulf Coast markets such as Gulf Shores and Orange Beach.
However, qualifying the borrower is only part of the process.
The condominium project itself may also have to satisfy Fannie Mae or Freddie Mac requirements.
Potential issues can involve:
Insurance coverage
Special assessments
Deferred maintenance
Structural or safety concerns
Litigation
Commercial space
Owner occupancy
Delinquent HOA dues
Project financial condition
Short-term rental characteristics
A borrower can be financially well-qualified while the condominium itself creates a financing issue.
For that reason, buyers considering Gulf Coast condominiums should evaluate financing and project eligibility as early as possible.
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Business owners and self-employed borrowers can qualify for conventional financing.
However, calculating qualifying income can be more complicated than it is for a borrower earning a fixed W-2 salary.
Depending on the borrower's circumstances, underwriting may evaluate:
Personal tax returns
Business tax returns
Schedule C income
S corporation or partnership income
K-1 income
Business ownership percentage
Business liquidity
Year-to-date profit and loss information
Income stability and history
Fairhope Mortgage works with self-employed borrowers to evaluate qualifying income before they begin shopping for a home.
EXPLORE SELF-EMPLOYED MORTGAGE OPTIONS
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Depending on the program and transaction, conventional financing may be available for:
Single-family homes
Condominiums
Planned-unit developments
Townhomes
2–4 unit residential properties
Second homes
Investment properties
Eligible manufactured homes
New construction
Property and occupancy requirements vary, so not every property is eligible for every conventional loan program.
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Both conventional and FHA financing can be excellent options, but they work differently.
Conventional Financing
Can allow as little as 3% down for qualifying transactions.
Can finance primary residences, second homes, and investment properties.
Uses private mortgage insurance when applicable.
PMI may eventually be removable when applicable requirements are satisfied.
Pricing and PMI are influenced by the borrower's credit profile and other factors.
FHA Financing
Can allow 3.5% down for qualified borrowers with a credit score of 580 or higher.
FHA guidelines also permit financing for qualifying borrowers with credit scores from 500–579 at a maximum 90% LTV.
Designed primarily for owner-occupied principal residences.
Uses FHA mortgage insurance.
Can provide additional flexibility for borrowers with certain credit profiles.
Neither program is automatically better.
Fairhope Mortgage can compare conventional and FHA financing based on the actual purchase price, credit profile, down payment, mortgage insurance, interest rate, and estimated monthly payment.
EXPLORE FHA LOANS
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Some qualified borrowers and transactions may be eligible for conventional financing with as little as 3% down. Eligibility depends on the specific program, occupancy, property type, borrower qualifications, and underwriting requirements.
No. A 20% down payment is not required for many conventional mortgages. Qualifying borrowers may be able to purchase with 3%, 5%, 10%, 15%, or another down-payment amount.
Putting at least 20% down can generally eliminate the need for private mortgage insurance at closing.
There isn't one credit score that guarantees approval. Requirements depend on the specific conventional program, automated underwriting findings, property, LTV, credit history, and overall loan profile.
Potentially. Certain conventional programs allow qualifying borrowers to finance up to 97% of a one-unit primary residence.
When the first mortgage exceeds 80% of the property's value, private mortgage insurance is generally required, subject to applicable program requirements.
Potentially, yes. Conventional PMI may be canceled or terminated when applicable federal law, investor, servicer, equity, payment-history, and other requirements are satisfied.
Yes, eligible gift funds can be used on qualifying primary-residence and second-home transactions, subject to applicable requirements. Gift funds aren't permitted on Fannie Mae investment-property transactions.
Yes. Conventional guidelines permit qualifying seller or other interested-party contributions, with limits based on occupancy and LTV.
Yes, qualifying second homes can be financed conventionally.
Yes. Conventional mortgages can finance qualifying investment properties, subject to applicable down-payment, reserve, underwriting, and other requirements.
Yes, but both the borrower and condominium project may have to satisfy applicable financing requirements.
Yes. Self-employed borrowers can qualify when acceptable income can be documented and the borrower satisfies applicable underwriting requirements.
Potentially. Eligible assistance programs may be combined with qualifying conventional mortgages when both programs' requirements are satisfied.
Potentially. Conventional financing can be used for eligible 2–4 unit properties, including owner-occupied and investment transactions when applicable requirements are met.
It depends on the borrower and transaction. Credit, down payment, mortgage insurance, interest rate, property type, occupancy, and long-term plans can all affect which option makes more sense.
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Fairhope Mortgage uses current Fannie Mae, Freddie Mac, and Federal Housing Finance Agency guidance when evaluating conventional financing.
Fannie Mae Selling Guide
Official Fannie Mae eligibility and underwriting requirements.
https://selling-guide.fanniemae.com/
Freddie Mac Single-Family Seller/Servicer Guide
Official Freddie Mac mortgage requirements.
Fannie Mae HomeReady
https://singlefamily.fanniemae.com/originating-underwriting/mortgage-products/homeready-mortgage
Freddie Mac Home Possible
https://sf.freddiemac.com/working-with-us/origination-underwriting/mortgage-products/home-possible
Federal Housing Finance Agency Conforming Loan Limits
https://www.fhfa.gov/data/conforming-loan-limit-cll-values
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Fairhope Mortgage helps qualified borrowers explore conventional mortgage options throughout the markets we serve, including:
Fairhope, Alabama
Daphne, Alabama
Spanish Fort, Alabama
Foley, Alabama
Gulf Shores, Alabama
Orange Beach, Alabama
Bay Minette, Alabama
Robertsdale, Alabama
Mobile, Alabama
Huntsville, Alabama
Pensacola, Florida
New Orleans, Louisiana
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Tom Kalagher
Mortgage Loan Officer & Branch Manager
Fairhope Mortgage
Individual NMLS #2028566
Fairhope Mortgage helps homebuyers, homeowners, and real estate investors evaluate conventional and other mortgage options throughout the Gulf Coast.
Whether you're buying your first home, moving to a larger home, purchasing a second home, financing an investment property, or refinancing an existing mortgage, we'll help you compare available options based on your individual situation.
Fairhope Mortgage, LLC
314 Magnolia Ave, Suite 101
Fairhope, AL 36532
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Last reviewed: September 2026
Reviewed by: Tom Kalagher, Mortgage Loan Officer, NMLS #2028566
Conventional mortgage information on this page is based in part on current guidance from Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency. Mortgage guidelines and individual lender requirements can change, and lender underwriting requirements may exceed agency minimums. Contact Fairhope Mortgage for current program eligibility and requirements.