How conventional home loans work in the United States
A conventional home loan is a mortgage that is not backed or insured by a federal government agency (such as the FHA, VA, or USDA). Instead, conventional mortgages follow guidelines established by government-sponsored enterprises Fannie Mae and Freddie Mac.
Conventional loans that fall within the annual baseline borrowing ceiling ($766,550 for single-family homes in most US counties) are known as conforming loans. Mortgages that exceed this borrowing threshold are classified as jumbo conventional loans, which frequently require higher credit scores, larger down payments, and stricter cash reserve requirements.
Borrowers can obtain a conventional mortgage with as little as 3% to 5% down payment. However, if your down payment is less than 20% of the property's purchase price, lenders require private mortgage insurance (PMI) to protect against default. Under the federal Homeowners Protection Act, PMI can be cancelled once your loan balance reaches 80% of the home's original appraised value.
Worked example: Purchasing a $450,000 home with 20% down
Consider a homebuyer in the United States purchasing a single-family house for $450,000 with a 20% down payment ($90,000) on a standard 30-year fixed conventional mortgage at 6.75% annual interest.
The resulting mortgage loan amount is $360,000, which falls well within the federal conforming limit. Because the buyer puts down a full 20%, private mortgage insurance (PMI) is $0.00.
At a 6.75% fixed rate over 360 monthly payments, the monthly principal and interest (P&I) equals $2,334.95. Adding monthly real estate property taxes of $450.00 ($5,400 annually) and monthly homeowners hazard insurance of $125.00 ($1,500 annually) produces a total monthly payment (PITI) of $2,909.95.
Over the entire 30-year loan term, total principal and interest payments equal $840,582.00, consisting of the original $360,000.00 principal and $480,582.00 in cumulative interest charges.
Conforming limits, down payment rules, and PMI removal
Conforming loan limits are adjusted annually by the Federal Housing Finance Agency (FHFA) based on nationwide house price index changes. Loans below the conforming ceiling typically offer the most competitive fixed interest rates and flexible underwriting guidelines.
Putting down less than 20% requires borrower-paid PMI, which generally costs between 0.3% and 1.5% of the loan balance annually. Under federal statute (12 U.S.C. 4901), you have the legal right to request PMI removal once your scheduled principal balance reaches 80% loan-to-value (LTV), and your lender must automatically cancel PMI when the loan reaches 78% LTV.
Inputs for the Conventional home loan calculator
Home purchase price
The contract purchase price of the home.
Down payment
Your upfront cash down payment. A 20% down payment eliminates private mortgage insurance (PMI).
Mortgage interest rate
The fixed annual interest rate quoted by your mortgage lender.
Loan term
The duration of your conventional mortgage in years (standardly 30 or 15 years).
Annual property taxes
The estimated annual municipal and county real estate property taxes.
Annual homeowners insurance
The estimated annual premium for homeowners hazard insurance.
Annual PMI rate
The estimated annual private mortgage insurance rate (typically 0.3% to 1.5%), charged only if your down payment is below 20%.
Monthly HOA dues
Monthly association or maintenance fees if the property belongs to a homeowners association or condominium development.
CALCULATOR QUESTIONS
Conventional home loan calculator questions
What is the minimum down payment for a conventional home loan?
First-time buyers can qualify for a conventional loan with as little as 3% down payment through programmes like Conventional 97 or HomeReady. Repeat buyers typically need a minimum of 5% down payment. Putting down 20% or more allows you to avoid private mortgage insurance entirely.
When can I cancel PMI on a conventional mortgage?
Under the federal Homeowners Protection Act of 1998, you can submit a written request to cancel borrower-paid PMI when your loan balance reaches 80% of the original home value. By law, your lender must automatically terminate PMI once your mortgage balance reaches 78% of the original value.
What is the difference between a conforming loan and a jumbo loan?
A conforming loan meets the funding guidelines and dollar limits set by Fannie Mae and Freddie Mac ($766,550 for single-family properties in baseline areas). A jumbo loan exceeds these conforming loan limits, requiring non-conforming underwriting, higher credit scores, and often larger down payments.
What is included in a conventional mortgage PITI payment?
PITI combines Principal, Interest, real estate Taxes, and hazard Insurance into a single monthly housing payment. If you put down less than 20%, monthly PMI premiums are also collected as part of your monthly mortgage payment.