Conventional Mortgage Loan FAQs


A Conventional Mortgage Loan is a type of home loan that is not insured or guaranteed by the federal government. It typically requires a higher credit score and a larger down payment compared to government-backed loans such as FHA, VA, or USDA loans. 
A conventional mortgage is called "conventional" because it conforms to the standards set by Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs) that buy and sell mortgages on the secondary market. These loans follow guidelines that include credit score requirements, loan limits, and down payment criteria. 

To qualify for a conventional mortgage, borrowers typically need: 

  • A good credit score (usually 620 or higher, though requirements can vary). 
  • A stable income and employment history. 
  • A down payment (usually ranging from 3% to 20% of the home's purchase price). 
  • A debt-to-income ratio (DTI) that meets lender guidelines. 
Conventional mortgages may require Private Mortgage Insurance (PMI) if the borrower's down payment is less than 20% of the home's purchase price. PMI protects the lender in case the borrower defaults on the loan. Once the borrower reaches at least 20% equity in the home through payments or appreciation, they may be able to cancel PMI, depending on the lender's policies. 

Pros: 

  • Conventional home loans offer competitive interest rates. 
  • A conventional mortgage provides flexible property type and loan amount terms. 
  • Conventional home loans do not require mortgage insurance premium (if the down payment is 20% or more). 

 

Cons: 

  • Conventional home loans have higher credit score requirements (generally a minimum of 620). 
  • Conventional mortgages require a larger down payment, often 5% to 20% of the home's purchase price. 
  • Private Mortgage Insurance (PMI) is required if the down payment is less than 20% on a conventional mortgage.