When it comes to financing a home, conventional loans remain the most popular choice among buyers-accounting for nearly three-quarters of all single-family home purchases in recent years7. But what exactly is a conventional loan, and how do you know if it’s right for you? Let’s break down the essentials, benefits, and the different types of conventional loan products available today.
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, it’s offered through private lenders such as banks, credit unions, and mortgage companies67. Most conventional loans are “conforming,” meaning they meet the guidelines set by Fannie Mae and Freddie Mac, including loan limits (currently $806,500 for a single-family home in most areas for 2025)17.
Types of Conventional Loans
Conventional loans come in several varieties to suit different financial situations127:
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Conforming Loans:
These meet Fannie Mae and Freddie Mac standards, including maximum loan limits and borrower requirements. They offer competitive rates and are ideal for borrowers with good credit who don’t need to exceed standard loan limits12. -
Jumbo Loans:
For buyers needing to borrow more than the conforming loan limit, jumbo loans are available. These typically require higher credit scores, larger down payments, and stricter income verification27. -
Portfolio Loans:
Held by the lender instead of being sold on the secondary market, portfolio loans offer more flexible qualification criteria and can be tailored for unique borrower needs12. -
Subprime Loans:
Designed for borrowers with lower credit scores, subprime loans have higher interest rates and may include additional risk-based fees2. -
Fixed-Rate and Adjustable-Rate Mortgages (ARMs):
Fixed-rate loans offer predictable monthly payments, while ARMs start with a lower fixed rate that adjusts after a set period67.
Key Benefits of Conventional Loans
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Flexibility:
Conventional loans offer a wide range of terms, loan amounts, and options, making them highly adaptable to different borrower needs3. -
Lower Costs:
With a 20% down payment, you can avoid private mortgage insurance (PMI), saving money over the life of your loan. Even with less down, PMI can be removed once you reach 20% equity34. -
Faster Processing:
Without government red tape, conventional loans can often close more quickly than FHA or VA loans3. -
Fewer Upfront Fees:
Conventional loans tend to have fewer closing costs compared to government-backed mortgages3.
Who Qualifies for a Conventional Loan?
To qualify for a conventional loan, you generally need47:
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A minimum credit score of 620 (higher scores get better rates)
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A down payment as low as 3% (though 5% is more common)
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A debt-to-income ratio below 43% (some lenders allow up to 45%)
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Proof of stable income and employment
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A loan amount within conforming limits (unless applying for a jumbo loan)
Is a Conventional Loan Right for You?
If you have a solid credit history, stable income, and are looking for flexibility in your mortgage options, a conventional loan could be your best fit. Always compare loan offers and speak with a qualified lender to find the product that aligns with your financial goals.
Ready to explore your options?
Conventional loan products offer a range of solutions for today’s homebuyers. Whether you’re purchasing your first home or upgrading to your dream property, understanding these products can help you unlock the door to homeownership with confidence.
