Conventional Loan Guide
A conventional loan is a mortgage that isn't insured or guaranteed by a government agency. Most conventional loans are 'conforming,' meaning they meet size and underwriting guidelines set by Fannie Mae and Freddie Mac, the two entities that buy and package the majority of U.S. mortgages.
Who It Tends to Fit
Conventional loans often fit borrowers with solid credit and a stable, documentable income, including first-time buyers who can make at least a modest down payment as well as repeat buyers and those refinancing an existing loan.
Key Features
- Available in fixed-rate and adjustable-rate versions
- Down payments as low as 3% are common on certain programs
- Private mortgage insurance (PMI) is typically required below 20% down, and can usually be removed once enough equity builds
- Loan limits follow annually updated conforming loan limits, which vary somewhat by county
General Qualifying Factors
- Credit scores in the high-600s or above are common for the best pricing, though some programs accept lower scores
- A debt-to-income ratio lenders find manageable, often up to around the mid-40s percent, depending on other factors
- Verifiable income and at least two years of employment or self-employment history
- Enough funds for the down payment plus closing costs and cash reserves, depending on the lender
Exact requirements vary by lender and can change over time, so treat the figures above as general starting points rather than guarantees. A licensed loan officer can confirm current guidelines for a specific program.
Costs to Expect
Beyond the down payment, expect closing costs (commonly a few percent of the loan amount), an appraisal fee, title insurance, and — if putting down less than 20% — ongoing PMI until enough equity is built or the loan balance drops far enough.
Also Worth Knowing
Because conventional loans aren't government-insured, lenders carry more of the risk directly, which is part of why credit and income documentation tend to be scrutinized closely.