Conventional Loans Explained

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When financing a home there are many loan programs to consider such as FHA, VA, USDA Rural Development and conventional mortgages. They all have different advantages and unique eligibilities to obtain a mortgage. Let’s dive into some of the specifics and benefits of qualifying for a conventional loan.


Conventional mortgage or loan means that it is not insured or guaranteed by the government like a VA and FHA loan are. It’s actually backed by private lenders which can also mean they are riskier. Qualifying can be tougher than it is for government loans.

Down Payment

Historically, lenders have required up to 20% down when purchasing a home. To compete with the FHA’s minimum 3.5% down, conventional loans can be as low as 3% down and meet the income requirements set by Fannie Mae and Freddie Mac. When putting down less than 20%, you’re required to pay Private Mortgage Insurance (PMI). The premium can be as low as 18%. Mortgage insurance will automatically end once equity of the home has reached 20%. In comparison to an FHA loan, you pay a one-time funding fee, ranging from 1%-3% of the loan amount, and monthly mortgage insurance premium that remains on the life of the loan.

FICO Score

Although FICO score requirements can vary, a score of 620 is typically the minimum credit score needed to obtain the loan. However, your interest rate will depend on your credit score and credit history. Therefore, the greater your score is, the less you’ll pay in interest for the duration of the loan. Fixed mortgage terms can range from 30, 20, 15 and 10 years.

Conforming Loans

These loans comply with the guidelines of Freddie Mac and Fannie Mae which also includes a maximum loan amount. As of 2020, the standard limit for conforming loans is $510,400 for one-unit properties. Jumbo loans are any amount higher than the standard conforming amount, and portfolio loans are conventional loans a lender chooses to keep in its own portfolio instead of selling it on the secondary market which give lenders more flexibility with underwriting, such as assisting with those who have low credit scores or higher debt-to-income ratios. We hope you’ve gained some insight on conventional loans and continue to research the many different mortgage options available to you. Making an informed decision about a mortgage is wise and important to make the loan choice that makes sense for you financially. 

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