When it comes to buying a house, choosing the right mortgage is the first step. One of the most popular mortgage options is the conventional home loan, and for good reason. They’re widely available, flexible, and have fewer property restrictions than government-backed loans.
Let’s explore what a conventional loan is, how it compares to other loan types, the kinds of properties you can purchase with one, and whether it’s the right type of home loan for you.
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What is a conventional home loan?
A conventional home loan is a mortgage that’s not backed by any U.S. government agency, like the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the U.S. Department of Agriculture (USDA). Instead, it’s backed by private lenders, including banks, credit unions, online lenders, and mortgage brokers.
Most conventional loans are conforming, which means they meet the guidelines (loan limit and credit) set by the Federal Housing Finance Agency (FHFA), the agency in charge of Fannie Mae and Freddie Mac. A loan that doesn’t meet or exceed the standards set by FHFA is called a nonconforming loan. One of the most common types of nonconforming loans is a jumbo loan.
Since conventional home loans aren’t insured by any government program, they often have stricter requirements.
Conventional home loan requirements
Like any other type of mortgage loan, you must meet certain requirements to qualify for a conventional loan. Here are the most common conventional home loan requirements:
Credit score
In most cases, you need a credit score of at least 620 to qualify for a conventional loan. While you can still buy a home with bad credit, a higher score could mean more loan options and a lower interest rate.
Down payment
The minimum down payment required for a conventional mortgage is 3%. However, other conventional loans require larger down payments, especially if you’re taking out a jumbo loan.
Debt-to-income (DTI) ratio
This is the percentage of your gross monthly income you allocate for debts. Most lenders require a DTI ratio of 36% or less, though some lenders can give you a mortgage with a high DTI —up to 50% in certain exceptions.
Loan limit
Your loan must be within the limits set by Fannie Mae and Freddie Mac. For 2025, the conforming loan limit for a one-unit property is $806,500. Areas such as Alaska, Hawaii, Guam, and the U.S. Virgin Islands have higher limits of up to $1,209,750.[1]
Private mortgage insurance (PMI)
If you put down less than 20% on a conventional home loan, you’ll need to pay for private mortgage insurance. PMI protects lenders if a borrower defaults on their mortgage payments.
What kind of properties work with conventional loans?
Because private lenders issue conventional loans, you can use them to finance a wide range of property types, including:
- Primary residences: Use a conventional loan to purchase a home you plan to live in full time.
- Second homes and vacation properties: You can also use conventional loans to buy additional properties, like second residences and vacation homes.
- Multi-unit properties: Buy multi-unit properties with up to four units, such as duplexes and triplexes.
- Investment properties: Conventional loans can also help finance properties for investment purposes, like rental homes.
- Foreclosed properties: You can buy foreclosed properties with conventional loans, but it depends on the specific foreclosure type and the property’s condition.
- Mobile homes: It’s also possible to finance mobile homes, but the property must be permanently affixed to owned land, meet HUD guidelines, and be classified as real property.
What kind of rates can you get with conventional loans?
Interest rates on conventional loans vary based on your credit score, down payment, loan term, and property type. According to Bankrate, the average interest rate for a 15-year fixed loan is 5.99%, while that of a 30-year fixed loan is 6.76% (as of July 30, 2025).[2]
Your credit score has the biggest impact on the rates you get. The higher your score, the lower the rates you may qualify for. Loan terms also affect rates—15-year mortgages have lower rates than 30-year loans. The more money you put down, the better your loan terms will be.
Do conventional loans require a home inspection?
Conventional loans don’t need a home inspection, but getting one is highly recommended. It reveals hidden issues before closing on a property so you can avoid costly surprises later.
Pros and cons of conventional loans
Like any other loan type, conventional loans have advantages and disadvantages. Weighing the pros and cons can help you decide whether it’s the right loan for your needs.
Pros
- Competitive interest rates and terms: The higher your credit score, the lower your interest rate will be and the better terms you’ll get.
- Removable PMI: If you put down 20% of the home’s purchase price, you don’t have to pay PMI. Once you’ve built at least 20% equity in your home, you can cancel your PMI.
- Flexible property options: Unlike government-backed loans that restrict the type of property you can purchase, conventional loans let you buy literally any property一from primary residences to second homes or investment properties.
- Higher loan limits: Jumbo loans let you afford more expensive properties that exceed government loan limits.
Cons
- Higher credit score requirement: To qualify for a conventional home loan, you need a credit score of at least 620.
- Larger down payment for best terms: While 3% down is possible, you'll get better rates and avoid PMI with 20% down.
- Stricter approval standards: Lenders scrutinize income, assets, and debt more carefully because they're taking on more risk.
Conventional loans vs. other home loan types
Let’s see how conventional loans compare to other home loan types to help you decide which best fits your situation.
| Feature | Conventional loan | FHA loan | USDA loan | VA loan |
|---|---|---|---|---|
| Credit score | 620 | 500 | 580 | 620 |
| Minimum down payment | 3% | 3.5% with a credit score of 580 o r 10% with a 500 credit score | 0% | 0% |
| Loan limits | $806,500–$1,209,750 | $806,500–$1,209,750 | Varies by region | $806,500 |
| Maximum DTI | 50% | 50% | 43% | Depends on the credit score, down payment, etc. |
| Mortgage insurance | PMI (removable after you build at least 20% equity) | You’ll pay mortgage insurance premium (MIP) for the entire life of the loan | Guarantee fee | Funding fee |
| Property types | Most types | Primary residence | Primary residence | Primary residence |
Conventional loans vs. FHA loans
FHA loans cater to borrowers with lower credit scores and smaller down payments, accepting scores as low as 580 with 3.5% down. However, they require mortgage insurance premiums (MIPs) for the loan's entire life, regardless of the equity you build. Plus, FHA loans also limit you to primary residences. Conventional loans offer more flexibility when it comes to property types but require stronger credit and financial profiles.
Conventional loans vs. USDA loans
USDA loans are available for low- and moderate-income individuals and families in eligible rural areas. While they require zero down payment, they have strict credit score (at least 580), geographic, and income limitations. Conventional loans work nationwide for any income level but require down payments and have other stricter conditions.
Conventional loans vs. VA loans
Backed by the Department of Veteran Affairs, VA loans are for active-duty members, veterans, and surviving spouses. They require zero down payment, and you can only use the loan to finance a primary residence. On the other hand, conventional loans are available to anyone and can finance many property types.
The bottom line: Conventional loans are popular for a reason
Conventional loans remain the most popular mortgage option, especially for borrowers with good credit scores and stable income. It gives you flexibility in the kind of property you can buy and where you buy it. It also lets you save money by avoiding extra fees like PMI (if you put down at least 20%).
Still unsure which loan is right for you? If you have strong credit and steady income, you’ll likely get better rates and terms with conventional loans. But if your credit is low and you need assistance with a down payment, government-backed home loans might be worth exploring.
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