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. These loans are offered by private lenders, such as banks, credit unions, and mortgage companies, and typically conform to the loan limits and guidelines set by Fannie Mae and Freddie Mac. Conventional loans are the most common type of mortgage and can be used for primary residences, second homes, and investment properties.

What Are the Benefits of a Conventional Loan?

Conventional loans offer a variety of benefits for borrowers with strong credit and stable income. These include:

• Lower overall borrowing costs for well-qualified applicants
• No upfront mortgage insurance (unlike FHA loans)
• Flexible loan terms (typically 15, 20, or 30 years)
• Can be used for a wider range of property types, including vacation homes and rental properties
• Option to cancel Private Mortgage Insurance (PMI) once equity reaches 20%

What Are the Conventional Loan Requirements?

To qualify for a conventional mortgage, borrowers must meet certain financial and credit standards. These typically include:

• Credit Score: Minimum of 620, but a score of 740 or higher qualifies you for the best rates
• Down Payment: Minimum of 3% for first-time buyers; 5% or more for others
• Debt-to-Income (DTI) Ratio: Typically 43% or lower, though some lenders may allow up to 50% with strong compensating factors
• Stable Income and Employment: Proof of steady income for the past two years
• Private Mortgage Insurance (PMI): Required if your down payment is less than 20%, but it can be removed once sufficient equity is reached

Conventional Loan Limits

Most conventional loans are considered “conforming” loans, meaning they meet the loan limit standards set by Fannie Mae and Freddie Mac. For 2025, the general conforming loan limit for a single-family home is $766,550, though it may be higher in high-cost areas.

Who Should Consider a Conventional Loan?

Conventional loans are ideal for borrowers who:

• Have a good to excellent credit score
• Can make a down payment of at least 3–20%
• Want to avoid ongoing mortgage insurance costs
• Are purchasing a second home or investment property

Need Help with a Conventional Loan?

If you think a conventional loan is right for you or want to compare it with other mortgage options, feel free to reach out using the contact information below.