Programme
Conventional Loan
Not government-backed, and the only common route where the mortgage insurance genuinely ends.
A conventional loan is one that is not insured or guaranteed by a government agency. Most are written to Fannie Mae or Freddie Mac guidelines so they can be sold to them, which means the rulebook is public: anyone can read the selling guide and see what the requirement actually is. The feature that matters most on a low down payment is that private mortgage insurance is temporary and its ending is governed by federal law rather than by a servicer's goodwill.
- 3% down on some first-time-buyer programmes
- PMI cancels at 80% on request
- Automatic termination at 78%
- Primary, second home or investment
Floor four
What it gives you
The mortgage insurance ends, and the law says when
The Homeowners Protection Act gives you a right to request cancellation at 80% of the original value and requires automatic termination at 78%, both measured on the amortisation schedule. It is not a favour and it does not depend on who services the loan.
The rulebook is published
Fannie Mae's Selling Guide and Freddie Mac's Seller/Servicer Guide are public documents. When an underwriter cites a requirement, you can go and read it — which is not true of a jumbo or a non-QM loan, where the guideline belongs to a private investor.
It is not restricted to a home you live in
The same programme covers a principal residence, a second home and an investment property, at different down payments and pricing. FHA, VA and USDA all require occupancy.
There is no up-front insurance premium
FHA charges 1.75% at closing and USDA 1%, financed into the balance. A conventional loan charges neither, so you are not paying interest for thirty years on a fee you never saw.
Floor three
What this programme costs you
Every programme buys you something by charging you something else. This is the half a brochure leaves out, and it is the half that decides whether the programme is right for you.
- Trade-off 01
PMI is priced off your credit score, steeply
FHA charges every borrower the same annual premium regardless of score. Private mortgage insurance does not: the rate is set by a grid of credit score against loan-to-value, and the difference between the top and bottom of that grid is several times over. A borrower with a thin or damaged file can find conventional PMI costs materially more than FHA's premium in the early years — which is exactly the situation where the FHA duration rule then makes the long-run comparison flip back.
- Trade-off 02
The 80% is measured against the ORIGINAL value, not today's
The Homeowners Protection Act rights attach to the price you paid, on the amortisation schedule. Appreciation does not count toward them. A servicer may agree to cancel earlier on a new appraisal under investor guidelines, but that is a discretionary route with its own seasoning requirements and its own appraisal fee, and it is not the statutory right most people believe they have.
- Trade-off 03
The credit and reserve bar is higher than FHA's
There is no published federal minimum score, which sounds permissive but is not: the automated underwriting system and the lender set it, and in practice the floor sits well above FHA's 580. A file that FHA would take can be declined here, and the smaller the down payment the less tolerance there is elsewhere in the file.
Floor two
The published rules, and where they come from
These are rules, not prices. This site publishes no rates, so what follows is the part of the programme that is written down somewhere a third party can check.
| Rule | What it says | Source |
|---|---|---|
| When PMI is required | Borrower-paid mortgage insurance is generally required while the loan-to-value is above 80% on a one-unit principal residence. | Fannie Mae Selling Guide B7-1; Freddie Mac Seller/Servicer Guide 4701.1 |
| Cancellation on request | The borrower may request cancellation when the balance on the amortisation schedule reaches 80% of the ORIGINAL value of the property, if payments are current and the servicer's conditions on liens and value are met. | Homeowners Protection Act of 1998, 12 U.S.C. 4902(a) |
| Automatic termination | The servicer must terminate PMI automatically when the balance on the amortisation schedule first reaches 78% of the original value, whether or not the borrower asks. | 12 U.S.C. 4902(b) |
| Final termination | If PMI is somehow still in force at the midpoint of the amortisation period, it must be terminated then, provided the borrower is current. | 12 U.S.C. 4902(c) |
| "Original value" | The lesser of the sale price and the appraised value at the time the loan was made. Appreciation since closing does not count toward the statutory 80% and 78% points. | 12 U.S.C. 4901(12) |
| Minimum down payment | As little as 3% on eligible low-down-payment and first-time-buyer programmes; 5% is the common floor on standard programmes, and more on second homes and investment property. | Fannie Mae Selling Guide B5-6; Freddie Mac Seller/Servicer Guide 4501 |
| Conforming loan limit | Set each year by FHFA and varying by county and unit count. A loan above the limit is not conforming and becomes a jumbo loan under different rules. | 12 U.S.C. 4542; FHFA annual Conforming Loan Limit Values |
| Up-front insurance premium | None. There is no conventional equivalent of FHA's 1.75% up-front MIP or USDA's 1% guarantee fee. | Fannie Mae Selling Guide B7-1 |
Floor one
Who it fits
The usual guidelines. Every one of them is a starting point that an underwriter reads against the whole file, so treat a line you miss as a conversation rather than a closed door.
- A credit profile the automated underwriting system will accept — set by the guides and the lender, not by statute
- As little as 3% down on eligible first-time-buyer programmes; 5% is the common floor otherwise
- Documented income and employment, and assets sourced and seasoned
- A total debt ratio within the limits the automated system applies
- A loan amount at or below the conforming limit for that county and unit count
- The property may be a principal residence, a second home or an investment property, at different terms
Ground floor
How it goes, top to bottom
Work out whether conventional or FHA is actually cheaper for you
It turns on your credit score and on how long you will hold the loan. Price the PMI against the FHA premium over the years you expect to keep it, not over year one.
Pre-approval
The file goes through the automated underwriting system against the published guides. The finding tells you what documents will be required and what the limits are.
The offer and the appraisal
An ordinary appraisal, with no federal property-condition rulebook attached. A separate home inspection is yours to order and is a different thing from an appraisal.
Underwriting
Conditions are cleared against the selling guide. Where a requirement is cited you can look it up, which makes this the least opaque underwriting on the site.
Closing, and then diarise the 80% date
Ask for the amortisation schedule and mark the month the balance reaches 80% of the purchase price. That is the month you can write and request cancellation — nobody will remind you.
Conventional against the two main government routes
| Feature | Conventional | FHA | VA |
|---|---|---|---|
| Backing | None — a private loan, usually sold to Fannie Mae or Freddie Mac | Insured by the Federal Housing Administration | Guaranteed in part by the Department of Veterans Affairs |
| Minimum down payment | 3% on eligible programmes; 5% commonly | 3.5% at 580+; 10% at 500–579 | None with full entitlement |
| Up-front fee | None | 1.75% MIP | 1.25%–3.30% funding fee, with exemptions |
| Monthly mortgage insurance | PMI while above 80% LTV | Annual MIP | None, at any LTV |
| When it ends | 80% on request, 78% automatically, against the original value | Not above 90% LTV at origination; 11 years at or below | Not applicable — the fee is paid once |
| Occupancy | Primary, second home or investment | Principal residence only | You must certify intent to occupy |
| Where the rulebook lives | Published selling guides anyone can read | HUD Handbook 4000.1, published | VA Lenders Handbook M26-7, published |
This table scrolls sideways on a narrow screen.
Questions this raises
When exactly does PMI come off?
Two dates matter. The first is when the balance on your original amortisation schedule reaches 80% of the original value — from then you may write and request cancellation, and the servicer must honour it if you are current, there is no junior lien and the value has not declined. The second is 78%, at which the servicer must terminate it automatically. Both are calculated against the original value, meaning the lesser of the price you paid and the appraised value at closing. Neither uses today's market value.
My house has gone up in value. Can I get PMI removed early?
Possibly, but not under the Homeowners Protection Act. Fannie Mae and Freddie Mac allow a servicer to cancel based on a current appraisal once seasoning requirements are met, at a lower loan-to-value than the statutory 80%. That is an investor guideline, not a statutory right, and you pay for the appraisal. It is a good option; it is just a different mechanism from the one the law guarantees.
Is conventional always better than FHA?
No, and the answer turns mostly on your credit score. Private mortgage insurance is priced off the score, so a borrower with a lower score can pay considerably more for PMI than an FHA borrower pays in annual MIP. What flips the comparison back is duration: conventional PMI ends and FHA's usually does not. Whichever way it goes, the sensible comparison is over the number of years you expect to hold the loan, not over the first payment.
What is the difference between conforming and conventional?
Conventional means it is not government-insured. Conforming means it is within the loan limit FHFA sets each year and meets Fannie Mae or Freddie Mac's guidelines, so it can be sold to them. Nearly all conforming loans are conventional; not all conventional loans are conforming — a loan above the county limit is a conventional loan that is also a jumbo loan, and the underwriting for it is set privately.
Put your own numbers through it
What would the payment actually be? The monthly payment page prints the rule it followed beside the answer, and the address bar carries your inputs so the link you send is the answer you saw.
Or read every programme side by side.