What is a Conventional Loan?
A conventional loan is a mortgage not insured or guaranteed by a government agency. These loans conform to guidelines set by Fannie Mae and Freddie Mac and are the most widely used mortgage product in the country.
Conventional loans offer flexibility in terms, down payment amounts, and property types. They're ideal for borrowers with good to excellent credit who want the best rates and maximum flexibility.
Key Benefits
- Down payments as low as 3%
- Fixed and adjustable rate options
- No upfront mortgage insurance with 20% down
- Loan amounts up to conforming limits
- Competitive interest rates for qualified borrowers
- Available for primary, secondary, and investment properties
Who This Loan Is For
Homebuyers and investors with solid credit (620+), stable income, and at least 3% down. Conventional financing works well for primary residences, second homes, and investment properties when you want predictable terms and no government-program restrictions.
Typical Requirements
- • Credit score 620+
- • Down payment 3–20% (PMI required below 20%)
- • Debt-to-income ratio typically under 45%
- • Two years of income history
- • Loan amounts up to conforming limits (subject to underwriting)
Key Terms to Know
- Loan-to-Value (LTV)
- The loan amount divided by the property value. A lower LTV often means better terms and no mortgage insurance.
- Debt-to-Income (DTI)
- Monthly debt payments divided by gross monthly income. Lenders typically look for under 45%.
- Private Mortgage Insurance (PMI)
- Required on conventional loans with less than 20% down; automatically cancelled once you reach 20% equity.
- Conforming Loan Limit
- The maximum loan Fannie Mae and Freddie Mac will purchase ($766,550 in most areas for 2024). Loans above this are jumbo loans.
- Cash-Out Refinance
- Replacing your mortgage with a larger loan and receiving the difference in cash — common for investors tapping equity.
See our FAQ and loan resources for more definitions and checklists.
Related Loan Programs & Resources
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