Conventional Loans in South Bend, Mishawaka & Granger
Conventional loans offer 3% down for first-time buyers, PMI that cancels automatically, and flexible property types. The most common mortgage type in the South Bend area, ideal for buyers with solid credit.
What is a conventional loan?
A conventional loan is a mortgage that is not backed by a government agency like the FHA, VA, or USDA. Instead, conventional loans follow underwriting guidelines set by Fannie Mae and Freddie Mac, the two government-sponsored enterprises that purchase mortgages from lenders. This is the most common mortgage type in the United States.
Conventional loans that meet Fannie Mae and Freddie Mac loan limits are called "conforming" loans. Loans that exceed these limits are called "jumbo" loans and have different requirements. See the jumbo loans guide for details on high-value financing.
Conventional loan benefits
- 3% down for first-time buyers - Fannie HomeReady and Freddie Home Possible offer 3% down with income limits. Standard conventional may also offer 3% down.
- 5% down for move-up buyers - No first-time buyer requirement for 5% down conventional loans.
- PMI cancels automatically - Unlike FHA MIP, private mortgage insurance on conventional loans cancels at 78% loan-to-value. You can also request cancellation at 80%.
- No upfront mortgage insurance - FHA charges a 1.75% upfront MIP. Conventional loans have no upfront premium.
- Flexible property types - Conventional loans can be used for primary residences, second homes, and investment properties (unlike FHA and VA, which are primary residence only).
- Gift funds allowed - Down payment gift funds are allowed with proper documentation, though rules differ slightly from FHA.
- Competitive rates - With good credit, conventional loans often have lower total monthly costs than FHA when you factor in mortgage insurance differences.
Conforming loan limits
Conforming loan limits are set annually by the Federal Housing Finance Agency (FHFA) and vary by county. Most counties in Indiana and Michigan share the same baseline limit, though some high-cost areas have higher limits. The vast majority of homes in South Bend, Mishawaka, Granger, Elkhart, Plymouth, Niles, Edwardsburg, and surrounding areas are well under the conforming limit.
If you are buying a home above the conforming loan limit, you will need a jumbo loan. Contact me to connect with a lender for the current conforming loan limit in your county.
Private mortgage insurance (PMI)
If you put less than 20% down on a conventional loan, you will pay private mortgage insurance (PMI). PMI protects the lender, not you, but it allows you to buy with a smaller down payment. Here is how it works:
- Cost - PMI typically costs 0.3% to 1.5% of the loan amount per year, depending on your credit score, down payment, and loan type. On a $150,000 loan with 5% down and good credit, PMI might cost $50 to $100 per month.
- Cancellation - PMI cancels automatically when your loan-to-value ratio reaches 78% of the original value. You can also request earlier cancellation at 80% LTV if your home has appreciated.
- Ways to remove PMI faster - Making extra principal payments, home appreciation, or improvements that increase value can all help you reach 80% LTV sooner.
This is the key advantage of conventional over FHA. With FHA, mortgage insurance typically lasts for the life of the loan if you put less than 10% down. With conventional, it goes away when you have enough equity.
Conventional vs FHA comparison
| Feature | Conventional | FHA Loan |
|---|---|---|
| Down payment | 3% minimum (first-time) | 3.5% minimum |
| Min credit score | 620+ | 580 |
| Mortgage insurance | PMI (cancels at 78% LTV) | MIP (life of loan if < 10% down) |
| Upfront premium | None | 1.75% of loan |
| Property types | Primary, second home, investment | Primary residence only |
| Seller concessions | Up to 3% (3-10% down) | Up to 6% |
| Assumable | No (most loans) | Yes |
| Best for | Credit 680+, flexible property needs | Credit 580-679, lower down payment |
See the FHA loans guide for the full FHA perspective.
Fannie HomeReady and Freddie Home Possible
These are specialized conventional loan programs designed for first-time and low-to-moderate-income buyers. Both offer 3% down and more flexible underwriting than standard conventional loans.
| Feature | Fannie HomeReady | Freddie Home Possible |
|---|---|---|
| Down payment | 3% minimum | 3% minimum |
| Min credit score | 620 | 620 |
| First-time buyer requirement | At least 1 borrower (if all first-time, must complete education) | At least 1 borrower |
| Income limits | 80% of area median income (AMI) | 80% of AMI (100% in low-income areas) |
| Non-borrower household income | Can be counted | Can be counted |
| Gift funds | Allowed for down payment and closing costs | Allowed |
| PMI | Required, cancels at 78% LTV | Required, cancels at 78% LTV |
Both programs are excellent options for South Bend area buyers. With median home prices in South Bend and Mishawaka well below national averages, many local buyers qualify for these programs. Income limits vary by location, so contact me to connect with a lender who can verify your eligibility.
The conventional loan process
- Get pre-approved - Contact a lender to get pre-approved. You will need income documentation, credit history, and asset verification. See the home buying process guide for what to prepare.
- Find your home - Work with me to find a home within your budget. Conventional loans have fewer property restrictions than FHA or VA, giving you more options.
- Make an offer - I will help you craft a competitive offer with your pre-approval letter.
- Appraisal and underwriting - The lender orders an appraisal to verify the home's value. Conventional appraisals are generally less strict than FHA or VA appraisals.
- Close - Sign your documents, pay your down payment and closing costs, and get your keys.
Down payment assistance with conventional loans
Conventional loans can pair with down payment assistance programs. In Indiana, IHCDA programs may provide DPA that works with conventional financing. In Michigan, MSHDA programs offer similar options. Because conventional loans allow 3% down, the DPA needed to cover your down payment is relatively small. See the down payment assistance guide for program details.
Frequently asked questions about conventional loans
What is a conventional loan?
A conventional loan is a mortgage that is not backed by a government agency like the FHA, VA, or USDA. Instead, conventional loans follow guidelines set by Fannie Mae and Freddie Mac, the two government-sponsored enterprises that buy mortgages from lenders. Conventional loans are the most common mortgage type in the United States and are available to anyone who meets the credit and income requirements.
What credit score do I need for a conventional loan in Indiana?
Most conventional lenders require a minimum credit score of 620, but higher scores get better interest rates. For the 3% down first-time buyer programs (Fannie HomeReady and Freddie Home Possible), a score of 620 or higher is typically required. Scores of 740 or above generally get the best available rates. If your score is below 620, an FHA loan may be a better option.
When does PMI drop off a conventional loan?
Private mortgage insurance on a conventional loan cancels automatically when your loan-to-value ratio reaches 78% of the original home value, as long as your payments are current. You can also request PMI cancellation earlier once you reach 80% LTV based on the current value of your home. This is a major advantage over FHA loans, where MIP typically lasts for the life of the loan if you put less than 10% down.
What are conforming loan limits in St. Joseph County, Indiana?
Conforming loan limits are set annually by the Federal Housing Finance Agency (FHFA) and vary by county. Most counties in Indiana and Michigan have the same baseline conforming limit, though some high-cost areas have higher limits. The vast majority of homes in South Bend, Mishawaka, Granger, and surrounding areas are well under the conforming limit. Contact me to connect with a lender for the current conforming loan limit in your county.
What is Fannie HomeReady?
Fannie HomeReady is a conventional loan program that allows as little as 3% down for first-time and low-to-moderate-income buyers. It has more flexible income requirements than standard conventional loans, accepts income from non-borrower household members, and allows gift funds for the down payment. Income limits apply based on the property location. HomeReady is well-suited for South Bend area buyers where median home prices are affordable.
Is conventional better than FHA for South Bend buyers?
If your credit score is 680 or higher, conventional is usually the better choice because PMI cancels at 78% loan-to-value while FHA MIP lasts for the life of the loan (with less than 10% down). Conventional also has no upfront mortgage insurance premium (FHA charges 1.75%). However, if your credit score is below 680 or you need more flexible debt-to-income ratios, FHA may offer lower monthly payments. I can connect you with a lender to compare both options side by side.
Can I get a conventional loan with 3% down in Indiana?
Yes. Fannie HomeReady and Freddie Home Possible both offer 3% down conventional loans for first-time buyers (defined as not having owned a home in the past 3 years). Standard conventional loans may also offer 3% down options. Income limits apply for HomeReady and Home Possible. On a $150,000 South Bend home, 3% down is $4,500. Down payment assistance programs can further reduce or eliminate your out-of-pocket cost.
Related guides
Is a conventional loan right for you?
Call or text Worm at 574-240-WORM to discuss conventional loan options for your South Bend area home purchase. I can connect you with local lenders and help you compare conventional vs FHA side by side.