What is a Conventional Mortgage?
A conventional mortgage is a home loan that is not backed by the federal government. These loans are offered by private lenders and typically follow guidelines set by Fannie Mae and Freddie Mac.
They are a popular choice for borrowers with solid credit, steady income, and the ability to make a down payment.
Conventional Mortgage Requirements
- Credit Score: Minimum of 620 (higher scores get better rates)
- Stable Income & Employment: Verifiable income and job history
- Debt-to-Income Ratio (DTI): Typically should be below 45%
- Down Payment: As low as 3% for first-time buyers
- Property Appraisal: Must meet loan-to-value guidelines
- Private Mortgage Insurance (PMI): Required if down payment is less than 20%
Why Choose a Conventional Loan?
- Competitive interest rates
- Flexible loan terms (15, 20, or 30 years)
- No upfront mortgage insurance fee (unlike FHA)
- PMI can be removed once 20% equity is reached
- Can be used for primary homes, second homes, or investment properties
Down Payment Options for Conventional Mortgages
- 3% down: Available for first-time homebuyers through special programs
- 5%–10% down: Common for repeat buyers
- 20% down: No PMI required, better interest rates
- More than 20%: Even more favorable loan terms and flexibility
Types of Conventional Loans
- Conforming Loans: Meet Fannie Mae/Freddie Mac limits (e.g., $766,550 for most areas in 2024)
- Non-Conforming Loans (Jumbo Loans): Exceed conforming limits—ideal for high-priced properties
- Fixed-Rate Mortgages: Stable monthly payments for 15, 20, or 30 years
- Adjustable-Rate Mortgages (ARM): Lower initial rates that adjust after a fixed period
Benefits of Conventional Loans
- Low overall borrowing costs
- More loan options to fit financial goals
- PMI is cancellable once 20% equity is reached
- Competitive interest rates for strong credit borrowers
- Flexible down payment options
