What Is a Conventional Mortgage?
A conventional mortgage is a home loan that is not backed by a government agency, such as the FHA, VA, or USDA. Instead, it’s offered through private lenders, including banks, credit unions, and mortgage companies. These loans follow the guidelines set by Fannie Mae and Freddie Mac, the two government-sponsored enterprises that help standardize and stabilize the mortgage market.
Why Choose a Conventional Mortgage?
Conventional loans are among the most popular financing options for homebuyers, and for good reason. They offer:
- Low Down Payment Options (3%) for first time borrowers and as low as 5% for other borrowers.
- Flexible loan terms, typically 15, 20, or 30 years
- No private mortgage insurance (PMI) with a 20% down payment
- Competitive interest rates for those with strong credit
- The ability to finance primary residences, second homes, or investment properties
Types of Conventional Mortgage Options
Conforming Loans
Conforming loans meet the criteria established by Fannie Mae and Freddie Mac. These include loan limits (which vary by county), credit score minimums, and debt-to-income ratio requirements. In 2025, the conforming loan limit in most areas is $766,550.
Ideal for: Buyers with good credit (over 700 is a good starting point) and those with moderate to high down payments. Many buyers do use conforming loans with a 3% down payment as well.
Non-Conforming (Jumbo) Loans
These are loans that exceed the conforming loan limits. Because they carry more risk for lenders, jumbo loans typically require:
- Higher credit scores (usually 700+)
- Lower debt-to-income ratios (typically a max of 43%)
- Larger down payments (often 10–20% or more)
- 6+ months of reserve assets (additional funds available)
Ideal for: Buyers looking to finance luxury properties or homes in high-cost areas, beach homes in Florida or any property over the conforming limit.
Fixed-Rate Conventional Mortgages
With a fixed-rate mortgage, your interest rate—and monthly payment—remains the same for the life of the loan. This provides stability and predictability.
Ideal for: Long-term homeowners who prefer consistent monthly payments.
Adjustable-Rate Mortgages (ARMs)
ARMs offer a lower introductory interest rate for a set period (e.g., 5, 7, or 10 years), after which the rate can adjust annually based on market conditions.
Ideal for: Buyers who plan to sell or refinance before the rate adjusts.
Low Down Payment Conventional Loans
Some conventional loans offer down payments as low as 3%, such as the Fannie Mae HomeReady® or Freddie Mac Home Possible® programs. These are geared toward first-time homebuyers and those with moderate incomes.
Ideal for: Buyers with limited savings but strong credit.
Who Qualifies for a Conventional Mortgage?
To be eligible for a conventional loan, most lenders will look for:
- Credit score of 620 or higher (lower credit score requires higher down payment on conventional) and a clean credit history (no lates is ideal)
- Down payment of at least 3% (20% to avoid PMI)
- Stable income and employment history
Conventional vs. Government-Backed Loans
Down Payment
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