Learn About a Conventional Loan
What is a Conventional Loan?
A conventional loan is a mortgage that isn’t insured or guaranteed by the federal government. Unlike government-backed loans (FHA, VA, USDA), conventional loans are funded and managed by private lenders, such as banks, credit unions, or mortgage companies. The lender takes on the risk, and borrowers must meet specific eligibility and financial requirements.
Conventional loans can be used to buy a primary home, a second home, or an investment property. However, it's important to note that there are two types: conforming (which meets the requirements set by Fannie Mae and Freddie Mac) and non-conforming (which doesn’t meet these guidelines, often because the loan amount exceeds the limits).

Eligibility for a Conventional Loan
To qualify for a conventional loan, lenders typically look for:
- A Credit Score of at least 620 (though higher scores often result in better terms)
- Stable Income, with proof of income (e.g., pay stubs, W-2s, tax returns)
- Low debt-to-income (DTI) ratio to ensure you can handle monthly payments
The exact requirements may vary based on the type of conventional loan you’re applying for and your lender’s criteria.
Why Choose a Conventional Loan?
There are several key benefits to conventional loans:
- Higher Loan Limits: Unlike FHA loans, which have set maximum limits based on location, conventional loans can offer higher loan amounts, which can be a big advantage if you're purchasing a more expensive property.
- Lower Interest Rates: Conventional loans may offer lower interest rates, especially for borrowers with strong credit. However, government-backed loans like FHA, VA, and USDA loans may offer competitive rates for those who meet specific eligibility criteria.
- Avoid PMI: If you can put down at least 20% of the home's purchase price, you won’t need to pay private mortgage insurance (PMI), which can lower your monthly payment.
Types of Conventional Loans
- Fixed-Rate Mortgages: The most common option, offering stable monthly payments with a fixed interest rate for the duration of the loan.
- Adjustable-Rate Mortgages (ARMs): Initially, ARMs come with lower interest rates that can fluctuate after a set period, which could result in lower payments early on. However, keep in mind that your rate may increase over time.
- Jumbo Loans: These loans are designed for higher-priced homes that exceed the conforming loan limits, allowing you to finance a larger purchase.
Is a Conventional Loan Right for You?
Conventional loans can be a great option if you have good credit, a stable income, and a decent down payment. They offer flexibility, competitive rates, and the potential to avoid mortgage insurance with a 20% down payment.
If you’re considering buying or refinancing a home and think a conventional loan might be the right fit for you, Closing with Daniel is here to help guide you through the process. Contact us today to discuss your options! 📞