Conventional Mortgage – Conventional Loan Rates & Requirements

Conventional loans may be issued by banks, private lenders, or credit unions. Conventional loans are not backed by the federal government like FHA or VA mortgage loans. Because they are not insured by the federal government, conventional mortgages are considered a higher risk for lenders, thereby, making credit and income requirements to qualify for these loans stricter than other loans. To obtain a conventional mortgage, you’ll need to demonstrate good credit and financial stability. There can be several advantages for borrowers who take out conventional loans.

Conventional mortgages come in two main flavors: conforming (meeting Fannie Mae/Freddie Mac limits) and non-conforming or jumbo (larger loans). Lenders typically look for a solid credit history, a debt-to-income ratio lenders like to see under about 45% (but lower is better), verifiable income, and reserves — the more you can show, the sweeter the terms. Down payments can start low on some conventional products, but to avoid PMI you’ll want to hit that 20% mark; otherwise expect monthly mortgage insurance until you reach that equity level. Because these loans aren’t government-insured, underwriting tends to be stricter and appraisals more scrutinized, so paperwork and preparation matter.

If you’re deciding whether to go conventional, think strategy: conventional loans usually offer the best pricing for borrowers with good credit and cash for a down payment, and they’re flexible for second homes or investment properties — something FHA and VA rules restrict. They reward financial readiness (better credit = lower rates), and you can often refinance or cancel PMI later as equity grows. That said, if your credit or cash reserves are shaky, a government-backed loan might be the more practical route to homeownership today; conventional pays off over time only if you can play the long game and keep your financial house in order.