Conventional Mortgage: Costs, Rules, Fit

A $400,000 conventional mortgage at 6.625% instead of 6.99% cuts the principal-and-interest payment by about $95 per month – roughly $5,700 over five years before taxes, insurance, prepayments, or refinance costs. In markets like Richmond, Midlothian, and Virginia Beach, where small pricing and rate differences quickly compound, that gap can matter as much as negotiating the purchase price.

By Duane Buziak, Mortgage Maestro, NMLS#1110647

Table of Contents

What a conventional mortgage actually is
How conventional loan limits and pricing work
Conventional mortgage vs FHA, VA, and USDA
Who usually fits a conventional mortgage best
Costs, reserves, and credit thresholds
5-step conventional mortgage roadmap
FAQ
Legal disclaimer

What a conventional mortgage actually is

A conventional mortgage is a home loan that is not insured by a federal agency such as FHA, VA, or USDA. Most conforming conventional loans are designed to meet Fannie Mae or Freddie Mac guidelines, which is why buyers hear terms like conforming limits, loan-level pricing adjustments, private mortgage insurance, and reserves.

In practice, this is the loan many well-qualified buyers use when they have solid credit, stable income, and enough down payment to avoid the higher long-term cost structure that can come with FHA mortgage insurance. It is also common for move-up buyers in places like Glen Allen and Chesterfield, where equity from a prior home sale can reduce the loan-to-value ratio and improve pricing.

For 2025, the baseline conforming loan limit for a one-unit property is $806,500 in most areas, according to the Federal Housing Finance Agency at https://www.fhfa.gov. Above that, borrowers move into jumbo territory, which follows different underwriting and reserve rules.

How conventional loan limits and pricing work

Conventional pricing is driven by a mix of credit score, down payment, property type, occupancy, debt-to-income ratio, and loan size. A primary residence with 20% down and a 760 score is not priced the same as a two-unit property with 10% down and a 680 score. That is why broad online rate ads often miss the real borrower experience.

Henrico County gives a useful local benchmark because pricing pressure is real there. The countywide median sold home price was about $425,000 in recent market reporting from Redfin, making conventional financing especially relevant because many buyers are shopping below the conforming ceiling but above entry-level pricing. Source: https://www.redfin.com/county/2934/VA/Henrico-County/housing-market

Inventory conditions also matter. In many Central Virginia submarkets, competition remains strongest for updated homes in the mid-$300,000 to mid-$500,000 range, while days on market can stretch for homes that need work or are priced aggressively. In Short Pump, Glen Allen, and Midlothian, buyers still benefit from full underwriting preparation before making an offer because sellers continue to favor clean financing.

Payment sensitivity by rate

| Loan Amount | Rate | P&I Payment | Monthly Difference vs 6.625% | 5-Year Difference | |—|—:|—:|—:|—:| | $350,000 | 6.625% | $2,241 | Base | Base | | $350,000 | 6.875% | $2,299 | $58 | $3,480 | | $350,000 | 7.125% | $2,358 | $117 | $7,020 | | $400,000 | 6.625% | $2,561 | Base | Base | | $400,000 | 6.99% | $2,656 | $95 | $5,700 |

These figures are principal and interest only on a 30-year fixed term and are rounded.

Conventional mortgage vs FHA, VA, and USDA

The main appeal of a conventional mortgage is flexibility paired with lower ongoing cost for many borrowers once credit and down payment are strong enough. FHA can be more forgiving on credit and down payment, but its mortgage insurance can stay in place for the life of the loan in some cases. VA is often the strongest option for eligible veterans because it can offer no down payment and no monthly mortgage insurance, though funding fees may apply. USDA can be compelling in eligible rural areas, but geography and income rules limit who can use it.

Loan program comparison table

| Program | Typical Minimum Score* | Down Payment | Monthly MI | Upfront Fee | Best Fit | |—|—:|—:|—:|—:|—| | Conventional | 620 | 3% to 5%+ | Yes below 20% down | None | Strong-credit buyers, move-up buyers | | FHA | 580 with 3.5% down | 3.5% | Yes | Yes | Lower credit or thin-file borrowers | | VA | Often 580-620 lender dependent | 0% | No | Funding fee may apply | Eligible veterans and service members | | USDA | Often 640 for streamlined approval | 0% | Yes, lower than FHA | Yes | Eligible rural buyers | | Jumbo | Often 700+ | 10% to 20%+ | Usually no MI, but stricter reserves | None | Higher-price homes above conforming limits |

*Minimums vary by lender, profile, and automated underwriting result.

Fannie Mae’s conventional overview is here: https://www.fanniemae.com. Consumer mortgage basics are covered by the CFPB here: https://www.consumerfinance.gov/owning-a-home/

Who usually fits a conventional mortgage best

A conventional mortgage usually fits best when the borrower has a credit score of 680 or higher, stable documented income, and at least modest cash reserves after closing. It becomes especially attractive once the borrower can put 5% to 20% down, because private mortgage insurance generally becomes cheaper as credit improves and can be removed later when equity reaches the required threshold.

For first-time buyers in Richmond or Fredericksburg, conventional can still work with as little as 3% down, but that does not automatically mean it is the best answer. If the score is in the low 600s, FHA may still carry a better total payment despite the insurance structure. If the borrower is VA-eligible, conventional often loses on cash-to-close and monthly payment unless there is a narrow pricing advantage.

Investors and second-home buyers can use conventional financing too, but underwriting gets tighter. Expect higher down payment requirements, stronger reserve expectations, and more pricing adjustments. A one-unit investment property often needs at least 15% down, and many lenders want six months of reserves or more depending on the file.

Costs, reserves, and credit thresholds

Closing costs on a conventional mortgage often land around 2% to 5% of the loan amount, depending on points, title charges, escrows, and local recording taxes. On a $425,000 purchase in Henrico County with 10% down, a buyer might reasonably plan for roughly $8,500 to $17,000 in closing costs and prepaid items, separate from the down payment.

Private mortgage insurance is one of the biggest swing factors. On a strong-credit file, PMI may be modest. On a lower-score file, it can materially change affordability. This is where comparing conventional against FHA becomes practical rather than theoretical.

Conventional mortgage qualification benchmarks

In Virginia Beach and Hampton Roads, where insurance and tax escrows can add meaningfully to payment, buyers should model the full housing cost instead of focusing only on the note rate. The same principle applies in Charlottesville and Albemarle County, where higher median prices can push buyers to the edge of affordability even before HOA dues are counted.

5-step conventional mortgage roadmap

Check your baseline numbers first. That means credit score, monthly debts, available funds, and whether your income is straightforward W-2, self-employed, commission-based, or variable.

Set a payment cap before setting a price cap. Buyers often reverse this and end up shopping too high once taxes, insurance, HOA dues, and PMI are added.

Compare conventional against FHA or VA using the same property taxes, insurance estimate, and down payment assumptions. The cheaper rate is not always the cheaper loan.

Get prequalified with a soft credit pull when available, then move to full underwriting before writing offers in competitive areas. In Chesterfield and Short Pump, that can improve seller confidence.

Review the Loan Estimate line by line. Pay attention to lender credits, discount points, title fees, escrows, and whether the projected PMI is removable under standard servicing rules.

FAQ

Is a conventional mortgage better than FHA?

It depends on credit, down payment, and time horizon. Conventional often wins for stronger-credit borrowers because PMI can be cheaper and removable. FHA can win when credit is bruised or debt ratios are tight.

What credit score do I need for a conventional mortgage?

620 is a common minimum, but pricing usually improves materially at 680, 700, 720, and above.

Can I get a conventional mortgage with 3% down?

Yes, some first-time buyers can. The trade-off is higher loan-to-value, more PMI exposure, and sometimes tighter income or occupancy rules.

Does conventional mortgage PMI last forever?

No. On many loans, PMI can be removed once you meet the servicer’s equity and payment history requirements.

Are conventional closing costs higher than FHA?

Not always. The comparison depends on rate, points, lender fees, upfront mortgage insurance, and seller concessions.

Can self-employed borrowers use a conventional mortgage?

Yes, if income can be documented under agency guidelines. If tax returns reduce qualifying income too much, bank statement or non-QM options may be more practical.

Legal disclaimer

This article is for educational purposes only and does not constitute financial or legal advice.

The smartest use of a conventional mortgage is not treating it like the default option. It works best when the numbers are tested against your actual credit profile, cash position, and local market pressure rather than a headline rate on a screen.