REGION – A conventional loan, also called a conventional mortgage, is a type of loan offered through a private lender, like a bank, credit union, or mortgage company. Many conventional loans are purchased by Fannie Mae and Freddie Mac, which requires lenders to assess borrowers based on these organizations’ requirements.
Unlike government-backed loans like FHA, VA, or USDA loans, which are available to specific buyers based on certain criteria, conventional loans aren’t limited to borrowers based on factors like income, location, or military status. If you meet the lender’s qualification requirements, you will be eligible for a conventional mortgage.
How a conventional loan works
Since a conventional loan is not backed by a government agency, like FHA or VA loans, most private lenders offer this type of mortgage. You’ll need a 20% down payment to avoid private mortgage insurance (PMI). However, most first-time buyers can qualify with as little as 3% with PMI. You can apply for a conventional loan directly with any qualified mortgage lender. Conventional loan requirements may vary by lender. You can purchase almost any type of property, including a primary residence, vacation home, or investment property, as long as the home is within the conforming loan limits for the area. Conventional loans offer both fixed and adjustable rates, and flexible repayment periods, such as 15- and 30-year terms.
Conventional loan requirements
Conventional loans typically require larger down payments and stronger credit scores than nonconforming or government loans. Lenders generally have their own loan eligibility requirements, in addition to Fannie Mae and Freddie Mac guidelines. Since qualifications vary, be sure to shop around for a lender that meets your needs.
Some general conventional loan requirements for most lenders include a minimum credit score of 620, a DTI of 36% to 50%, and a down payment of 3% to 20% of the price of the home.
What do you need for a conventional mortgage?
The process of obtaining a conventional mortgage may begin with an optional preapproval. During this process, your lender will conditionally confirm you qualify for a loan based on reviewing a number of important documents. Typically, these documents include proof of income, employment verification, assets, proof of identity, and a credit report.
What is a conforming conventional loan?
Often, the terms “conventional loan” and “conforming loan” are used interchangeably, but they’re not quite the same. In fact, a conventional loan can be conforming or nonconforming. A conforming conventional loan is one that meets the guidelines set by Fannie Mae and Freddie Mac, and these loans are considered less risky. Conforming loans include qualification requirements as well as a loan limit – meaning a cap on the amount you’re allowed to borrow. For 2026, the conforming loan limit is $832,750. In some high-cost parts of the country, the conforming loan limit is higher, at $1,249,125.
Remember, individual lenders may have their own qualification criteria above and beyond Fannie Mae and Freddie Mac guidelines. That’s why it’s important to get quotes from at least three lenders before choosing one.
Nonconforming loans
A nonconforming loan is one that doesn’t meet the qualifications made by Fannie Mae or Freddie Mac. It’s also not a government-backed loan. The most common type of nonconforming conventional loan is a jumbo loan, because the loan amount exceeds the conforming loan limits.
The loan limit changes annually based on market changes, and is higher in more expensive parts of the country. Other non-confirming loans include specific programs for people with poor credit, high debt, bankruptcy, or those borrowing with a high loan-to-value ratio. If you have questions about nonconforming loans, talk to a lender. If you’re considering a nonconforming loan program, get a second opinion from another lender to prevent falling victim to any predatory lending practices.
Pros and cons of conventional loans
Each loan type offers different benefits and drawbacks, depending on your unique financial needs and situation. However, here are a few widely accepted pros and cons of conventional loans.
For borrowers with established credit and high credit scores, conventional loans have many upsides, including down payments as low as 3% (with PMI); flexibility, with fixed and variable rate options and multiple loan terms, up to 30 years; the ability to be used for second homes or investment properties; and ease of removing mortgage insurance down the road — you can typically cancel your PMI once your principal loan balance reaches 80% of the original home value.
The biggest downside to conventional loans is the lower flexibility in qualification criteria. Lenders will closely review your financial profile and deny any applicant with low credit scores or high debt-to-income ratios. Also, if you put less than 20% down, you’ll be saddled with paying monthly PMI, at least in the near term.
How to get a conventional loan
To start the process of getting a conventional loan, you have two options. If you’re just testing the waters and aren’t sure you’re ready to buy, a prequalification is a good first step, as it gives you a feel for the types of loans for which you might qualify, and it doesn’t require a hard credit pull.
Alternatively, you can go the preapproval route, where you provide all of your financial documents and allow the lender to perform a hard credit check. This step gives you a conditional approval to borrow a certain sum of money – an important first step if you’re serious about buying in the near future.
Once you’re under contract on the home you want to buy, you’ll complete the loan application with your preferred lender. Then, your interest rate may be locked in, your loan will go through the underwriting process, and, assuming everything goes through, you’ll close on the loan. Then it will be your responsibility to repay the loan according to its terms.
Conventional mortgage interest rates
The interest rate you’ll qualify for on a conventional mortgage will vary based both on the attributes of the loan itself and your financial profile. The amount you borrow, length of repayment, and whether it’s a fixed or variable-rate loan all factor into your interest rate. Similarly, your credit score, income, and debts play a role. More qualified buyers will enjoy lower interest rates, generally speaking.
If the interest rate you qualify for is too high for your liking, you may consider using mortgage points to buy down your interest rate. One point costs 1% of the loan amount and reduces your interest rate by 0.25%. Points are paid in cash at closing.
Conventional loan closing costs
When you take out a conventional loan, you’ll be required to pay closing costs that range between 2% and 5% of the purchase price. As part of your negotiation with the seller, you can request they pay for some or all of your closing costs. The amount and types of fees and charges they’re allowed to cover depend on the loan program and size of your down payment.
If your down payment is less than 10%, the seller can pay closing costs up to a total of 3% of the loan amount. For down payments of 10% to 24%, the seller can cover up to 6% of the loan. If you have a down payment of 25% or more, your seller is allowed to pay for closing costs up to 9% of the total purchase price.
Deciding which loan type is the right fit can be complicated. A lender can help summarize your monthly payments, determine the overall interest you’ll pay, and compare other pros and cons of each loan type.
Written by Alycia Lucio, provided by Zillow Group.