Conventional Loans

A conventional loan is any mortgage not insured or backed by a government agency like FHA or the VA. Most follow national conventional guidelines. A loan that fits those guidelines and the size limits is called conforming.

Randy Mathis, NMLS# 1516760, arranges conventional purchase and refinance loans through Lumin Lending Inc., with access to 100+ lenders and licenses in 15 states. Each lender adds its own overlays on top of conventional guidelines, so I shop your file.

Purchases, rentals, rate-and-term refinances and cash-out refinances can all be conventional. So can conventional low-down-payment programs, which reduce mortgage insurance coverage for borrowers within their income limits.

Automated underwriting systems look at your whole file at once. A strength in one area can make up for a weakness in another.

Credit. Since November 2025, DU has not required a minimum credit score. The Selling Guide reads, “A minimum credit score is not required for DU loan casefiles.” Manually underwritten loans still use a 620 floor (640 on adjustable-rate loans), and lenders can set their own floors. Your score still drives your pricing and mortgage insurance cost, in twenty-point bands.

Income and debts. Debt-to-income is your monthly debts divided by your gross monthly income. DU can approve up to 50%. Manually underwritten loans start at 36% and can reach 45% with strong credit and reserves.

Assets. You document the money for your down payment, closing costs and any reserves your findings require. Gift funds from a relative work on a primary or second home, not on an investment property.

The property. An appraisal sets the value unless your file is offered value acceptance. On a refinance, that value sets your loan-to-value. Loan-to-value decides your mortgage insurance and how much cash you can take.

Most of my conventional work is refinancing, and I hold every one to the same test. Does the benefit outlast the cost?

Rate-and-term refinance

Conventional guidelines call this a limited cash-out refinance. You replace your loan to change the rate, the term, or both. You can roll in closing costs, but cash back is capped at the greater of 1% of the new loan or $2,000. My clients use it to lower a rate, cut a 30-year loan to 15 or 20 years, go from adjustable to fixed, or remove a co-borrower.

Cash-out refinance

You take a new, larger first mortgage and keep the difference. On a one-unit primary home the new loan can reach 80% of the appraised value. At least one borrower must have been on title for six months. The catch is that your whole balance moves to the new rate. If your current rate is low, a HELOC or home equity loan that leaves your first mortgage alone is often the better math.

Refinancing to remove mortgage insurance

If you have PMI on a conventional loan, you may not need a refinance at all. PMI can come off on its own as your balance falls (see the PMI question below). With an FHA loan, refinancing into conventional at 80% loan-to-value or below is the usual way to end MIP for good.

For any of these, divide the closing costs by what you save each month. That's your break-even month. Then compare total interest over the years you expect to keep the loan. You can run your own numbers on the refinance calculator.

Conventional is flexible. It isn't always the cheapest loan for your file.

• Credit drives the price. Pricing adjustments step by credit score and loan-to-value, so a lower score costs more here than it might on FHA.
• PMI rises as scores fall. With some combinations of score and down payment, FHA is cheaper in the early years even with its MIP.
• Cash-out has a lower ceiling than VA. Conventional cash-out stops at 80% on a primary home; eligible veterans can go higher with a VA cash-out refinance.
• Every refinance has costs. Resetting a 30-year clock can lower your monthly figure and still raise your total interest. That's why I run the break-even first.