Conventional loans are often the best option for borrowers with strong credit who can contribute a down payment of at least 3%, or perhaps quite a bit more. Find out what conventional means in the mortgage industry, and whether it might be the right type of home loan for you.
Conventional loans tell the seller that the buyer is typically in a better financial situation and the time to close on the sale is faster.
A conventional loan can be a good option for those who have good credit, sufficient income, and minimal debt. However, it's important to understand the terms and benefits before making a decision and to make sure the loan is right for your financial goals.
Advantages Of Conventional Loans
Borrowers with good credit can benefit from lower interest rate offers. Higher Loan Limits. More money is available if borrowers meet the lender's credit, income, and debt-to-income requirements. Flexibility.
A lower credit score means more risk for your lender. Because of that, they'll charge you more to cover that risk, especially since a conventional loan doesn't have a government agency as a safety net. Once your score dips below 680, you could find that government-backed options offer more competitive rates.
A lot of first-time homebuyers think they need a 20% down payment to qualify for a conventional loan. That's simply not true. Conventional loan down payment requirements are as low as 3%. That's only $9,000 down for a $300,000 home, or $6,000 down for a $200,000 home.
A major benefit of a conventional loan is that the buyer often has higher credit ratings and more capital available for a down payment than with an FHA loan. On the other hand, FHA loans may be attractive to some sellers since they only require a small downpayment and have traditionally lower closing costs.
While conventional loans allow you to make a slightly smaller down payment of 3%, you must have a credit score of at least 620 to qualify. When you're deciding between a conventional loan versus an FHA loan, it's important to consider the cost of mortgage insurance.
Reasons your mortgage application may be denied include a dip in your credit score, increased debt, paperwork errors, a low home appraisal and unverified cash deposits.
Is it hard to get a conventional loan? It isn't hard to get a conventional loan if you have a 620 credit score and 3% down payment. You can get an FHA loan with a lower score, but you need a slightly higher down payment (3.5%).
Conventional loan closing costs encompass various fees associated with the necessary services required to secure a mortgage. Whether you are purchasing a home or refinancing, you will be responsible for covering these closing fees. Generally speaking, the expenses range between 3% and 6% of the loan amount.
In general, you'll need to move into the property within 60 days of closing. Additionally, you'll need to live in the property for at least 12 months to qualify as an owner-occupant with most lenders. In contrast, you could obtain financing as an absentee owner.
Structural Issues
If the appraiser notices problems with the foundation, roof, or load-bearing walls, these issues can lead to a failed appraisal. Common structural problems include: Foundation Cracks: Large or significant cracks in the foundation can indicate serious underlying issues.
The conforming mortgage loan limit for a single-family home in 2025 is $806,500, an increase from $766,550 in 2024. Conforming loan limits are based on home prices throughout the U.S.
There are no specific income limits for most traditional mortgage loans, such as conventional loans or FHA loans. Lenders typically focus on your income to qualify for a mortgage by looking at factors like your debt-to-income (DTI) ratio, credit score, and overall financial stability.
What is the highest credit score possible? To start off: No, it's not possible to have a 900 credit score in the United States. In some countries that use other models, like Canada, people could have a score of 900. The current scoring models in the U.S. have a maximum of 850.
Sellers often prefer conventional buyers because of their own financial views. Because a conventional loan typically requires higher credit and more money down, sellers often deem these reasons as a lower risk to default and traits of a trustworthy buyer.
While a 20% down payment is often recommended, it's not always required. A lender will look at the big picture when evaluating your mortgage application. Depending on your specific situation, you can put down as little as 3% when taking out a conventional mortgage.
Unfortunately, sellers often perceive the FHA loan approval process as risky because of the FHA's relatively lenient financial requirements and stricter appraisal and property standards.
Typically, to qualify for a conventional loan, you'll need a credit score of at least 620. Some lenders require a credit score of at least 660. However, if you want to make a lower down payment and get the best interest rates, it's best to have a score of 740 or higher.
Conventional loan
If the buyers provide between 10% and 25% for a down payment, sellers may pay up to 6% in seller concessions. If the buyers provide more than 25% for a down payment, sellers may pay up to 9% in seller concessions.