Conventional Loans
Conventional loans aren't backed by a government agency, follow Fannie Mae and Freddie Mac guidelines, and reward strong credit with the lowest rates and most flexible terms available.
At a glance
| Minimum down payment | 3% (first-time buyer) or 5% (repeat) |
|---|---|
| Minimum credit score | 620 |
| Maximum loan amount | $806,500 in most counties (2025 conforming limit); higher in high-cost areas |
| Mortgage insurance | Private mortgage insurance (PMI) required if down payment is under 20%; cancellable at 20% equity |
Best for
- Buyers with 620+ credit scores who want competitive rates
- Borrowers planning to put 20% down to avoid mortgage insurance
- Repeat homebuyers and those refinancing
- Buyers of second homes or single-unit investment properties
Eligibility requirements
- Credit score of at least 620 (740+ unlocks the best pricing tiers)
- Debt-to-income (DTI) ratio typically under 45%, up to 50% with strong reserves
- Two years of stable employment history
- Property must appraise at or above the purchase price
- Loan amount within the annual conforming limit set by the FHFA
Pros
- Lower interest rates than FHA for borrowers with 720+ credit
- PMI drops off automatically at 78% loan-to-value
- Available for primary, second home, and investment properties
- Loan terms from 10 to 30 years, fixed or adjustable
Cons
- Stricter credit and DTI requirements than government loans
- PMI is more expensive than FHA's MIP for lower credit scores
- Higher down payment needed to secure best rates
Documents you'll need
- Two most recent pay stubs
- Two years of W-2s and federal tax returns
- Two months of bank statements (all pages)
- Photo ID and Social Security number
- Explanation letters for any large deposits or credit issues
When a conventional loan makes sense
Conventional financing is the default for most U.S. homebuyers because it offers the broadest property eligibility and the best long-term cost when you have decent credit. If your credit is 740+ and you can put 20% down, no other program will beat it.
If your credit is in the 620–680 range or you’re putting less than 10% down, run the numbers against an FHA loan — the upfront and monthly mortgage insurance math sometimes favors FHA at the lower end of the credit spectrum.
Frequently asked questions
- What credit score do I need for the best conventional rate?
- Pricing improves at 660, 680, 700, 720, 740, and 760. The 740+ tier typically receives the lowest rate adjustments and the cheapest PMI.
- Can I put 3% down on a conventional loan?
- Yes, through Fannie Mae's HomeReady or Freddie Mac's Home Possible programs. These require first-time buyer status or income limits based on the property's census tract.
- When does PMI come off a conventional loan?
- You can request PMI removal at 80% loan-to-value based on original value, and the lender must remove it automatically at 78% LTV. With significant home appreciation, you can request early cancellation with a new appraisal.
- Are conventional loans assumable?
- No. Unlike FHA and VA loans, conventional loans cannot be assumed by a new buyer when the property is sold.
Related loan programs
- FHA Loans — FHA loans are insured by the Federal Housing Administration and let you buy with as little as 3.5% down and a 580 credit score, making them a top choice for first-time buyers and credit rebuilders.
- Jumbo Loans — Jumbo loans finance home purchases above the annual conforming loan limit set by the FHFA. They require stronger credit and reserves but offer competitive pricing on luxury and high-cost area properties.
- Refinance Loans — Refinancing replaces your current mortgage with a new one — to lower your rate, shorten your term, switch loan types, or pull cash out of your equity. The right refinance depends on your goal, not just current rates.