What is a Conventional Mortgage?
A conventional mortgage is a home loan backed by Fannie Mae or Fredie Mac, offering flexible terms, competitive rates, and down payments as low as 3%. Conventional mortgages are the most common mortgage issued in the United States, accounting for 68.0% of mortgages made in 2024.
Key Facts at a Glance
| Requirement | Conventional Mortgage |
|---|---|
| Minimum Credit Score | 620 |
| Minimum Down Payment | 3% |
| Current Average Rate | 6.50% |
| Market Share | 68.0% of all mortgages |
| Suitable For | Borrowers with good credit and stable income |
Key Definitions
Here are the key terms you'll encounter when exploring conventional loans:
- Conforming Loan
- A conventional mortgage that conforms to Fannie Mae and Freddie Mac guidelines, including mortgage loan limits. Current limit: $806,500 for 1-unit homes.
- Non-Conforming Loan (Jumbo)
- A conventional mortgage that exceeds conforming loan limits, typically requiring higher credit scores and larger down payments.
- Private Mortgage Insurance (PMI)
- Insurance required when your down payment is less than 20%, protecting the lender if you default.
- Debt-to-Income Ratio (DTI)
- The percentage of your gross monthly income that goes toward debt payments. Conventional loans typically require DTI below 43% unless you have compensating factors like high equity or excellent credit.
- Loan-to-Value Ratio (LTV)
- The ratio of your loan amount to the home's appraised value. Lower LTVs often mean better rates and no PMI.
- Pre-approval
- A lender's conditional commitment to loan you a specific amount based on your financial information and credit check.
What is a Conventional Mortgage?
A conventional mortgage is a home loan that is not insured or guaranteed by the federal government. Instead, these loans are backed by private lenders and follow guidelines set by government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac.
Unlike government-backed loans (FHA, VA, USDA), conventional mortgages rely on private capital and the borrower's financial strength. This means lenders can offer more flexible terms, but they also require stronger qualifications from borrowers.
How Conventional Mortgages Work
Conventional mortgages operate through a secondary market system where loans are sold to investors after origination. Here's the process:
- Origination: A lender approves and funds your mortgage
- Sale to GSEs: The lender sells your loan to Fannie Mae or Freddie Mac
- Securitization: Your loan is bundled with others into mortgage-backed securities
- Investor Purchase: Investors buy these securities, providing capital for new loans
This system allows lenders to offer competitive rates while managing risk through standardized guidelines.
Who Qualifies & Requirements
Basic Requirements
| Criteria | Conventional Loan | FHA Loan | VA Loan |
|---|---|---|---|
| Credit Score | 620 + | 580 + | 620 + |
| Down Payment | 3% - 20% | 3.5% - 10% | 0% |
| Mortgage Insurance | PMI (cancelable) | MIP (lifetime) | None |
| Loan Limits | $806,500 | $524,225 | No limit |
Detailed Qualification Criteria
Core Qualifications
| Requirement | Conventional Mortgage |
|---|---|
| Minimum Loan Size Allowed | None |
| Maximum Loan Size Allowed | See Loan Limits |
| Maximum Household Income Allowed | No Restrictions |
| Minimum Credit Score Required | 620 |
| Debt-to-Income Maximum - Standard | 50.00% |
| Debt-to-Income Maximum with Compensating Factors | 50.00% |
| Minimum Downpayment Required | 3.00% |
| Maximum Loan-To-Value Allowed | 97.00% |
| Maximum Combined Loan-to-Value Allowed | 105% |
| First-Time Homebuyer Education Required | No |
| Minimum Age Allowed | Minimum Legal Age |
| Maximum Age Allowed | None |
| First-Time Home Buyers Allowed | Yes |
| First-Time Home Buyers Only | No |
| Low-Down Payment Mortgage Classification | No |
| Income Verification Required | Yes |
| Military Service Required | No |
| States Allowed | All States |
| Homeowners Insurance Required | Yes |
| Escrow Taxes & Insurance Required | Recommended |
Credit History
| Requirement | Conventional Mortgage |
|---|---|
| Credit Scoring Model | Tri-merge |
| Non-Traditional Credit References Allowed | Yes |
| Deferred Student Loans | Lesser of 5% of balance or monthly payment |
| Deferred Debt Calculation | Lesser of 5% of balance or monthly payment |
| Pay Off Medical Collections Prior To Closing | Not Required |
| Pay Off Non-Medical Collections Prior To Closing | Not Required |
| Bankruptcy, Chapter 7 | 2-Year Waiting Period |
| Bankruptcy, Chapter 13 | 4-Year Waiting Period |
| Short Sale | 4-Year Waiting Period |
| Foreclosure | 7-Year Waiting Period |
| Judgments & Liens Allowed | Must be satisfied |
| Federal Income Tax Delinquency Allowed | Must be satisfied |
Income Requirements
| Requirement | Conventional Mortgage |
|---|---|
| W-2 Income Allowed | Yes |
| Self-Employment Income Allowed | Yes |
| Investment Income Allowed | Yes |
| Retirement Income Allowed | Yes |
| Trust Income Allowed | Yes |
| Social Security Income Allowed | Yes |
| Military Income Allowed | Yes |
| Rental Income Allowed | Restricted |
| Asset Depletion as Income Allowed | Yes |
| Offer Letter Income Allowed | Yes |
| Disability Income Allowed | Yes |
| Alimony and Child Support Income Allowed | Yes |
| Boarder Income Allowed | No |
| Accessory Dwelling Unit Income Allowed | No |
| Cannabis Industry Income Allowed | Yes |
| Automobile Allowance as Income Allowed | Yes |
| Housing Allowance as Income Allowed | Yes |
| Temporary Leave Income Allowed | Yes |
| Bank Statements as Income Allowed | No |
| Debts Paid By Others as Income Allowed | Yes |
Asset Guidelines
| Requirement | Conventional Mortgage |
|---|---|
| Seasoning Requirements | 60 Days |
| Reserves Required | No |
| Cash Gift For Downpayment Allowed | Yes |
| Seller Concessions, Maximum | 3.00% |
| Salary Advance for Downpayment Allowed | No |
| Relocation Funds for Downpayment Allowed | Restricted |
| Gift of Equity Allowed | Yes |
| Sweat Equity Allowed | Yes |
| Crypto for Downpayment Allowed | Yes |
| Cash Value For Credit Card Rewards Allowed | Yes |
| Cash Value For Airline Rewards Allowed | Yes |
Property Types
| Requirement | Conventional Mortgage |
|---|---|
| Minimum Square Footage Allowed | No minimum |
| Maximum Square Footage Allowed | No maximum |
| Single-Family Residences Allowed | Yes |
| Condominiums Allowed | Yes |
| Non-Warrantable Condominiums Allowed | No |
| Co-ops Allowed | Yes |
| Townhomes Allowed | Yes |
| 2-4 Unit Homes Allowed | Yes |
| Manufactured Homes Allowed | Yes |
| Fraternity and Sorority Houses Allowed | No |
| Tiny Homes Allowed | Yes |
| Modular Homes Allowed | Yes |
| Cob Homes Allowed | No |
| Shipping Container Homes Allowed | Yes |
| Condotels Allowed | No |
| Bed & Breakfast Allowed | No |
| Working Farms Allowed | No |
| Working Ranches Allowed | No |
| Houseboats Allowed | No |
| Log Homes Allowed | No |
| Geodesic Homes Allowed | No |
| Timeshares Allowed | No |
| Homes with Solar Panels Allowed | Restricted |
| 3-D Printed Homes Allowed | Yes |
| Leasehold Estates Allowed | Yes |
| Mixed-Use Properties Allowed | No |
| Flood Zones Allowed | Only where insurable |
| Properties With More Than 20 Acres Allowed | No |
| Properties with PACE Allowed | No |
Residency Rules
| Requirement | Conventional Mortgage |
|---|---|
| Primary Residence | Yes |
| Second Home | Yes |
| Vacation Home | Yes |
| Investment Property | Yes |
| Non-Occupant Co-Borrower | Yes |
Mortgage Insurance
| Requirement | Conventional Mortgage |
|---|---|
| Funding Fee / Guarantee Fee | No |
| Upfront Mortgage Insurance Premium | No |
| Annual Mortgage Insurance Premium | No |
| Private Mortgage Insurance | Yes |
Citizenship Requirements
| Requirement | Conventional Mortgage |
|---|---|
| U.S. Citizen Allowed | Yes |
| Permanent Resident Alien Allowed | Yes |
| Non-Permanent Resident Alien Allowed | Yes |
| Foreign National Allowed | Yes |
| Buyers With Diplomatic Immunity Allowed | Yes |
Title Rules
| Requirement | Conventional Mortgage |
|---|---|
| Inter Vivos Revocable Trust Allowed | Yes |
| Closing in a Corporation Allowed | No |
| Community Land Trust Allowed | Yes |
| Non-Profit Organizations Allowed | No |
| Municipal Government Agencies Allowed | No |
Product Options
| Requirement | Conventional Mortgage |
|---|---|
| 1-Year ARM Available | Yes |
| 5-Year ARM Available | Yes |
| 10-Year Fixed-Rate Mortgage Available | Yes |
| 15-Year Fixed-Rate Mortgage Available | Yes |
| 20-Year Fixed-Rate Mortgage Available | Yes |
| 25-Year Fixed-Rate Mortgage Available | No |
| 30-Year Fixed-Rate Mortgage Available | Yes |
| Temporary Buydowns Available | Yes |
Loan Features
| Requirement | Conventional Mortgage |
|---|---|
| Assumable Mortgage Allowed | No |
| Trailing Co-Borrower Allowed | Yes |
| Maximum Properties Financed Allowed | 10 |
| Flipped Homes Allowed | Restricted |
| Arms-Length Transaction Required | Yes |
| Occupancy Deadline | 60 days |
| Delayed Financing Allowed | Yes |
| Prepayment Penalty Allowed | No |
| Termite Inspection Required | No |
| Power of Attorney Allowed | Yes |
| Repair Allowances Allowed | No |
| Gifts From Charitable Organizations Allowed | No |
Industry Statistics
| Requirement | Conventional Mortgage |
|---|---|
| Average Interest Rate: Last Year | 4.97% |
| Average Loan Size: Last Year | $402,642 |
| Average Approval Rate: Last Year | 70.51% |
| Market Share: Last Year | 69.70% |
| Purchase Mortgages Originated: Last Year | 3,442,038 |
Types of Conventional Mortgages
Not all conventional mortgages are the same. Different programs exist for different borrower situations:
| Type | Suitable For |
|---|---|
| Conventional 97 | First-time buyers with 3% down payment |
| HomeOne® | First-time buyers with 3% down payment |
| HomeReady | Low-to-moderate income borrowers |
| Home Possible | Low-to-moderate income borrowers (Freddie Mac) |
| HomeStyle® Renovation | Buyers who want to purchase and renovate a home with one loan |
| CHOICERenovation® | Buyers who want to finance a purchase and renovations in the same loan |
| MH Advantage | Buyers of manufactured housing with features similar to site-built homes |
| Jumbo Loans | High-value properties exceeding loan limits |
| Conventional Refinance | Homeowners looking to refinance existing mortgages |
| Cash-Out Refinance | Homeowners wanting to access home equity |
| Investment Property Loans | Real estate investors and landlords |
📊 Key Statistic
When Conventional Loans Make Sense
Conventional loans work best for borrowers with good credit and stable income. Here's how it worked for one buyer:
Sarah had been renting for five years when she decided it was time to buy her first home. With a credit score of 720 and $15,000 saved for a down payment, she felt ready to take the plunge. Her stable job as a marketing manager provided the income she needed, and she was looking at homes well within the conventional loan limits.
Conventional mortgages work best for borrowers like Sarah who have good credit scores (typically 620 or higher) and can afford a down payment between 3% and 20%. These loans often offer flexibility that government-backed options may not provide, especially when it comes to avoiding lifetime mortgage insurance.
Sarah's situation was well-suited for a conventional loan. She had stable employment, a solid credit history, and enough savings for a 5% down payment. The fact that she could eventually remove her private mortgage insurance (PMI) once she reached 20% equity was a major advantage compared to FHA loans, which require lifetime mortgage insurance.
However, conventional loans aren't the right choice for everyone. If your credit score is below 620 , you might want to consider an FHA loan instead. Veterans should explore VA loans, which offer 0% down payment options. If you're buying in a rural area, USDA loans might be more suitable. And if you need to borrow more than $806,500 , you'll need to look into jumbo loans.
For Sarah, the conventional loan worked well. She closed on her three-bedroom townhouse last month and is already planning her first backyard barbecue. "The process went smoothly, and knowing I can remove the PMI in a few years makes the monthly payment much more manageable," she says. "I'm glad I waited until my credit was strong enough to qualify for a conventional loan."
Current Mortgage Rates & Market Trends
| Time Period | Conventional 30-Year Fixed Rate Mortgage Rate |
|---|---|
| Current | 6.26% |
| 1 week ago | 6.26% |
| 1 month ago | 6.26% |
| 1 year ago | 6.69% |
Historical Conventional Mortgage Rates
FRED Data: OBMMIC30YF
Conventional Mortgage Comparisons
Key Differences: Conventional vs. FHA Loans
| Feature | Conventional | FHA |
|---|---|---|
| Minimum Down Payment | 3% | 3.5% |
| Credit Score | 620 | 580 |
| Mortgage Insurance | When LTV > 80% | All loans |
| Standard Loan Limits | $806,500 | $524,225 |
| Occupancy | No Restrictions | Primary Only |
Key Differences: Conventional vs. VA Loans
| Feature | Conventional | VA |
|---|---|---|
| Minimum Down Payment | 3% | 0% |
| Credit Score | 620 | 620 |
| Mortgage Insurance | When LTV > 80% | None |
| Standard Loan Limits | $806,500 | None |
| Eligibility | Anyone | Veterans only |
| Funding Fee | None | Up to 3.6% |
Read more about conventional loans vs VA loans.
Key Differences: Conventional vs. USDA Loans
| Feature | Conventional | USDA |
|---|---|---|
| Minimum Down Payment | 3% | 0% |
| Credit Score | 620 | 640 |
| Mortgage Insurance | When LTV > 80% | All loans |
| Standard Loan Limits | $806,500 | None |
| Occupancy | No Restrictions | Primary Only |
| Property Classification | No Restrictions | Rural Only |
What To Do If...
My credit score is low
You're not alone. Many first-time buyers start with credit challenges. The good news is that credit scores often improve with focused effort. While conventional loans require a 620 credit score, you may have several paths forward.
| Action | Timeline | Impact |
|---|---|---|
| Pull credit reports | Today | Free |
| Dispute errors | 30 days | Up to 100 points |
| Pay cards below 30% | This month | Up to 150 points |
| Auto payments | This week | Prevents late fees |
If your score is below 620 :
| Option | Requirements | Timeline |
|---|---|---|
| Secured credit card | $200-500 deposit | 6+ months |
| FHA loan | 580+ credit score | Immediate |
| Credit counselor | Varies | 6+ months |
I have a high debt-to-income ratio
High debt-to-income ratios are one of the most common barriers to conventional loan approval. Lenders want to see that you can comfortably handle your mortgage payment alongside existing debts. The conventional loan limit is 43% , but there may be ways to improve your ratio.
Calculate Your Current DTI
- Add up all monthly debt payments (credit cards, car loans, student loans)
- Divide by your gross monthly income
- Multiply by 100 to get your percentage
| Quick Win | Timeline | DTI Impact |
|---|---|---|
| Pay off smallest card | 1-2 months | Cut DTI by 5% |
| Cancel subscriptions | Today | Cut DTI by 3% |
| Ask for credit limit increase | 1 week | Cut DTI by 2% |
4 Ways To Lower Your DTI
Four practical steps to reduce your debt-to-income ratio:
| Action | What to Do | How It Helps |
|---|---|---|
| Pay loans to < 10 payments | Car loans, student loans, personal loans | Excludes the payment from DTI |
| Increase income | Overtime, side hustle, request a raise | More income reduces DTI |
| Pay high-balance debts | Focus on highest balance cards first | Lower payments cut DTI |
| Reduce insurance | Shop for rates, raise deductibles, bundle policies | Lower payments cut DTI |
Specific loan programs for people with high debt-to-income
Some loan programs allow higher debt-to-income ratios:
- HomeReady: 50% DTI limit
- Home Possible: 50% DTI limit
- FHA: 56.9% DTI limit
I don't have money for a down payment
Saving for a down payment can feel overwhelming, but you won't need 20% down to buy a home. Designated conventional mortgage programs allow buyers to make down payments of just 3 percent. Many buyers use a combination of savings, gift funds, and down payment assistance to make homeownership possible.
| Designated Program | Down Payment | Credit Score Minimum | Income Limits |
|---|---|---|---|
| Conventional 97 | 3% | 620 | None |
| HomeReady | 3% | 620 | Yes |
| Home Possible | 3% | 620 | Yes |
| Community Seconds® | 0-3% | 620 | Varies |
Down Payment Assistance
Free money or forgivable loans may be available to help with your down payment. Here are some places to look:
| Source | What They Offer | How to Apply |
|---|---|---|
| State housing agency | Grants up to $15,000 | Search "[Your State] down payment assistance" |
| Local housing authority | Forgivable loans | Call your city/county housing office |
| Employer benefits | $5,000-$10,000 grants | Ask HR about homebuyer benefits |
| Nonprofit housing organizations | Closing cost help | Search for local housing nonprofits in your area |
Combining Multiple Sources
You can often combine different types of assistance. Community Seconds® is Fannie Mae's framework for pairing conventional mortgages with approved down payment assistance programs, allowing you to borrow up to 105% combined loan-to-value.
Alternative Sources for Down Payment
If traditional home buyer assistance programs aren't available to you, these options may help you save for a down payment:
| Source | What You Need | How to Get It |
|---|---|---|
| Family gift | Gift letter from donor | Ask family for documented gift funds |
| 401(k) loan | Employer plan allows loans | Contact your 401(k) administrator |
| Sell items/work | Extra income or assets | Sell unused items, take side jobs |
| Tax refund | Tax filing completed | File taxes early, use refund for down payment |
Resource: Check Down Payment Assistance Programs in your state.
📊 Key Statistic
Conventional Mortgages: Common Limiting Beliefs
"I need perfect credit to qualify."
You only need a 620 credit score, though higher scores get better rates.
"PMI will cost me thousands and never go away."
PMI typically costs 0.5% - 1% annually and can be removed when you reach 20% equity.
"Conventional loans are only for expensive homes."
Conventional loans work for homes of any price within loan limits.
"I need 20% down payment to even apply."
Conventional loans start at 3% down through programs like Conventional 97, HomeReady, and Home Possible.
"Government loans have better rates than conventional."
Borrowers with good credit (740+) often get better rates on conventional loans than FHA loans.
"Conventional loans take months to close."
Conventional loans typically close in 30-45 days, similar to government-backed loans.
"I can't use gift money from my parents."
Gift funds are allowed for conventional loans with proper documentation from the donor.
"I don't make enough money to qualify."
Income requirements are based on debt-to-income ratio, not minimum income thresholds.
Frequently Asked Questions About Conventional Mortgages
Find answers to common questions about conventional mortgages including requirements, benefits, and how to qualify.
What credit score do I need for a conventional mortgage?
You need a minimum credit score of <Substitext name="conv-min-fico" /> for a conventional mortgage. However, higher scores (740+) will get you the best rates and terms.
How much down payment do I need?
Conventional mortgages require 3% - 20% down payment. The minimum 3% is available through programs like Conventional 97, HomeReady, and Home Possible.
What is PMI and when can I remove it?
Private Mortgage Insurance (PMI) is required when your down payment is less than 20%. You can typically remove it when you reach 20% equity in your home.
How long does it take to get approved?
The typical approval process takes 30-45 days from application to closing. Pre-approval can be done in 1-3 days.
Can I refinance a conventional mortgage?
Yes, conventional mortgages can be refinanced. You can refinance to get a lower rate, change loan terms, or access equity through a cash-out refinance.
What are the current mortgage loan limits?
The current conforming loan limit is <Substitext name="cll-1unit" /> for 1-unit homes, ranging up to <Substitext name="cll-1unit-highcost" /> in high-cost areas. You can check the mortgage loan limit for your specific county.
