By: Lauryn Dempsey, Top Arvada and Denver Metro Area Realtor, Advisor & Navy Veteran | Serving Arvada and the Denver Metro Area, Colorado

Introduction: Charting Your Course to Homeownership

As a real estate advisor in Arvada and the Denver Metro area, I often guide clients through the most critical phase of homebuying: securing the right financing with the right lender. Just as a good ship requires the right navigation tools, a successful home purchase requires the right mortgage.

When discussing mortgages, you’ll primarily hear about two categories: government-backed loans (like FHA, USDA, and, of course, the VA Loan, which I am personally familiar with) and Conventional Loans.

In the simplest terms, a conventional loan is a mortgage that is not backed by a U.S. government agency. Instead, these loans are originated, backed, and serviced by private lenders such as banks, credit unions, and other financial institutions. They are, far and away, the most popular type of mortgage in the country.

While I advocate strongly for the unique benefits of the VA Loan for my fellow veterans and active service members, conventional financing is the bedrock of the general housing market. Understanding its mechanics, requirements, and key advantages is crucial whether you’re a first-time buyer or a seasoned investor in Colorado.

Let’s deploy a detailed plan to navigate the nuances of conventional financing.

1. The Conventional Loan:

Two Main Categories Conventional loans come in all shapes and sizes, but they generally fall into two categories based on the guidelines set by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).

A. Conforming Conventional Loans

These are the most common type of conventional loan. They conform to the loan limits and underwriting guidelines set by Fannie Mae and Freddie Mac.

• Purpose: Fannie Mae and Freddie Mac ensure a reliable flow of mortgage funding by buying and selling these mortgages on the secondary market.

• Loan Limits: To be considered "conforming," the loan amount must be at or below limits set by the Federal Housing Finance Agency (FHFA). These limits vary by county and are typically higher in high-cost areas like the Denver Metro area. For example, in 2025, the baseline limit for a single-unit property here is $833,750 in most counties.

B. Non-Conforming Conventional Loans

These mortgages do not meet the guidelines set by Fannie Mae and Freddie Mac. The most common type of non-conforming loan is the Jumbo Loan.

• Jumbo Loans: These are mortgages that exceed the conventional conforming loan limits. They are essential in markets like Denver, where home values often push past conforming caps. They allow you to borrow more but typically come with stricter down payment and debt-to-income (DTI) requirements.

2. Conventional Loan Requirements: The Borrower Profile

Because conventional loans are not insured by the government, private lenders take on more risk. Consequently, they have stricter eligibility requirements than government-backed programs (like the FHA loan, which is designed to help higher-risk individuals).

Lenders typically scrutinize the following financial factors:

A. Credit Score (The Most Critical Factor)

A minimum FICO credit score of 620 is generally required for a conforming conventional loan.

• The Sweet Spot: Borrowers with scores in the mid-to-high 700s (740+) stand to receive the best interest rates and most favorable terms. A score of 620 is considered "poor" in this context and would likely lead to a significantly higher mortgage rate.

B. Down Payment Criteria (Low Down Payment Options Exist)

While a 20% down payment is often considered the standard to avoid mortgage insurance, this is a major misconception.

• Minimum Down Payment: For qualifying first-time homebuyers, down payments can be as low as 3% for a fixed-rate loan on a single-unit primary residence. Repeat borrowers typically require a minimum of 5% down.

• Down Payment Sources: This can come from savings, a gift from a relative, or even certain down payment grant programs.

C. Debt-to-Income (DTI) Ratio

DTI compares your total monthly debt obligations (including the new mortgage payment) to your gross monthly income.

• The Standard: Lenders generally prefer to see a DTI ratio of 36% to 43%.

• The Maximum: Under some automated underwriting systems, conventional loans may allow a DTI ratio as high as 49% to 50%, depending on other qualifying factors like a high credit score or significant cash reserves.

3. The PMI Question: Mortgage Insurance Flexibility

If you put less than 20% down on a conventional loan, your lender will require Private Mortgage Insurance (PMI). This coverage protects the lender in case you default.

• Average Cost: The cost of PMI typically ranges from 0.46% to 1.5% of the loan amount annually, which is added to your monthly payment.

• The Conventional Advantage (The Exit Strategy): Unlike the Mortgage Insurance Premium (MIP) associated with FHA loans, which may last the entire life of the loan in many cases, PMI on a conventional loan can be canceled. You can request to have PMI removed once your loan-to-value (LTV) ratio reaches 80% (meaning you have 20% equity in the home).

This is a major financial benefit that can save Denver homeowners significant money over the life of the loan. In some cases, we can negotiate having the seller pay off your PMI at closing in order to lower your monthly costs!

4. Why Conventional Financing is a Strategic Choice for Arvada

For my Arvada and Denver Metro clients who have solid credit and some cash reserves, conventional financing offers strategic advantages that can be decisive in a competitive market:

A. Property and Investment Flexibility

In the Denver area, many buyers look at real estate as a long-term investment. Conventional loans offer flexibility regarding property types.

B. Perception and Speed in the Market

In a competitive bidding scenario, a conventional loan is often viewed by the seller as a stronger, less risky offer than an FHA or VA loan (an unfortunate, but real misperception in today’s market).

While all loans typically require an appraisal, conventional loan appraisals often have less stringent property requirements compared to FHA loan or VA loans, which mandate that the property meets certain health and safety standards.

C. The Cost Savings

For borrowers with excellent credit (740+), conventional loans don’t have mortgage insurance attached to the loan for the life of the loan, leading to lower total costs over the loan term. This is the reason many borrowers with strong profiles opt for conventional financing.

5. Conventional vs. VA Loan: A Note to My Fellow Veterans

As a veteran, I want to ensure my partners understand that the VA Loan is often the most powerful option available to them, regardless of conventional loan benefits. Here is a brief overview of how they compare:

The key difference lies in the government backing. Conventional loans are private, requiring stricter credit minimums (generally 620+) and demanding Private Mortgage Insurance (PMI) if you put less than 20% down. However, that PMI can be canceled once you reach 20% equity. The VA Loan, reserved for eligible veterans, stands alone in its benefits:

• Zero Down Payment: The single greatest advantage is the ability to purchase a home with a 0% down payment.

• No Mortgage Insurance: There is no required monthly Private Mortgage Insurance (PMI) or government-mandated MIP.

• Flexibility: VA loans are more flexible regarding credit scores and do not have specific loan limits for those with full entitlement.

For veterans with a lower credit score or minimal cash for a down payment, the VA Loan is often the clear choice. For veterans with excellent credit, the decision becomes a financial optimization—we’ll compare the lower potential interest rate of a conventional loan against the 0% down and lack of PMI/MIP of the VA Loan to determine your best path.

Conclusion: Your Conventional Loan Command Center

Conventional financing remains the gold standard for home financing due to its flexibility, cost-saving potential, and acceptance across the real estate landscape. In a competitive market like Arvada, coming to the table with a financially sound, pre-approved conventional loan (or a powerful VA Loan) gives you immediate negotiating leverage.

The key to navigating the Denver Metro market is preparation. Understanding the requirements for conventional loans—a minimum 620 credit score, managing your DTI, and planning for PMI—is the first step toward securing your dream home.

If you are looking for daily insight and tips on today’s market, follow Lauryn Dempsey on LinkedIn. If Lauryn can help you strategize your next steps in real estate in the Denver Metro Area or elsewhere across the U.S., please book a call!