Conventional Loans

What Is a Conventional Loan?

A conventional loan is a mortgage that isn’t backed by a federal government agency. It’s the most common type of home loan in the United States, accounting for roughly 80% of all mortgage originations.

Unlike FHA, VA, or USDA loans, conventional mortgages are offered by private lenders and follow guidelines set by Fannie Mae and Freddie Mac. Because there’s no government insurance protecting the lender, conventional loans typically require stronger credit and higher down payments - but they also come with significant advantages, including lower long-term costs and more flexibility.

If you have solid credit and some savings, a conventional loan is often the most cost-effective path to homeownership. For more, see our First-Time Homebuyer Guide.

Conventional Loan Requirements

To qualify for a conventional loan, you’ll need to meet requirements in four main areas: credit score, down payment, debt-to-income ratio, and employment history.

Credit score: The minimum is typically 620, though you’ll get better rates at 740+. Your credit score is the single biggest factor in your interest rate - even a 20-point difference can save you thousands over the life of the loan.

Down payment: As low as 3% for first-time buyers through programs like Fannie Mae’s HomeReady or Freddie Mac’s Home Possible. The traditional 20% down eliminates the need for private mortgage insurance (PMI), but most buyers put down far less.

Debt-to-income ratio (DTI): Lenders typically want your total monthly debts (including the new mortgage payment) to stay below 45% of your gross monthly income. Some exceptions allow up to 50% with strong compensating factors like high credit scores or significant reserves.

Employment: Two years of consistent employment history, though it doesn’t have to be at the same job. Self-employed borrowers need two years of tax returns. If your tax returns don’t reflect your actual income due to business deductions, a bank statement loan or other Non-QM loan may be a better fit.

How PMI Works on Conventional Loans

If you put less than 20% down, you’ll pay private mortgage insurance (PMI) - but unlike FHA’s mortgage insurance, conventional PMI is cancellable.

Once you reach 20% equity (based on the original purchase price), you can request PMI removal. At 22% equity, your lender is required by law to remove it automatically. This is one of the biggest advantages conventional loans have over FHA loans, which require mortgage insurance for the life of the loan if you put less than 10% down.

PMI typically costs between 0.3% and 1.5% of the original loan amount annually, depending on your credit score, down payment, and loan term. On a $300,000 loan, that’s roughly $75–$375 per month.

Conventional vs. FHA: Which Is Better?

The right choice depends on your credit score, down payment, and how long you plan to stay in the home.

Feature	Conventional	FHA
Min. Credit Score	620	580 (3.5% down)
Min. Down Payment	3%	3.5%
Mortgage Insurance	PMI (cancellable at 20%)	MIP (usually permanent)
Loan Limits (2026)	$832,750	$524,225 (floor)
Property Types	Primary, second homes, investment	Primary residence only
Seller Concessions	Up to 3-9%	Up to 6%

Choose conventional if: Your credit score is 680+ and you can put at least 5% down. You’ll likely get a better rate and save significantly on mortgage insurance over time.

Choose FHA if: Your credit is below 680 or you have limited savings. The slightly higher mortgage insurance cost is worth the easier qualification.

Not sure which is right for you? Take the 2-minute quiz or book a free consultation.

Conforming vs. Non-Conforming (Jumbo) Loans

Conventional loans come in two flavors based on the loan amount.

Conforming loans fall within the limits set by the Federal Housing Finance Agency (FHFA). For 2026, the standard limit is $832,750 in most areas, and up to $1,249,125 in high-cost markets. These loans follow Fannie Mae/Freddie Mac guidelines and typically offer the best rates.

Non-conforming (jumbo) loans exceed those limits. If you’re purchasing a higher-priced home in areas like South Florida or parts of the Triangle region in North Carolina, you may need a jumbo loan with different qualification requirements. For amounts above the conforming limit, see Jumbo Loans.

The Conventional Loan Process

Here’s what to expect from application to closing:

Step 1 - Pre-approval. We review your credit, income, assets, and debts to determine how much you qualify for. This typically takes 1-2 business days and gives you a pre-approval letter to shop with confidence.

Step 2 - Home search and offer. With your pre-approval in hand, you find a home and make an offer. Your agent handles negotiations.

Step 3 - Loan processing. Once your offer is accepted, we collect documentation (pay stubs, tax returns, bank statements) and order the appraisal. This phase takes 2-3 weeks.

Step 4 - Underwriting. The underwriter reviews everything and may ask for additional documentation. Typical turnaround is 1-2 weeks.

Step 5 - Closing. You sign the final paperwork, wire your down payment and closing costs, and get the keys. Total timeline from application to closing: 30-45 days on average.

Not sure how much home you can afford? Use our affordability calculator.