Conventional loans are mortgages that are not backed by any government entity, such as the FHA or VA. They are the most common type of mortgage and are available to borrowers with a wide range of credit profiles. Conventional loans typically follow the guidelines set by Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that purchase and guarantee mortgages. These loans offer flexible terms, competitive interest rates, and are available with fixed or adjustable interest rates.

The maximum loan limit for conventional loans is set by the FHFA and varies by county. As of 2024, the conforming loan limit for a single-family home in most areas is $726,200. In high-cost areas, the limit can go up to $1,089,300. Conventional loans that exceed these limits are considered jumbo loans. For borrowers looking to avoid private mortgage insurance (PMI), a 20% down payment is typically required. However, conventional loans are available with down payments as low as 3% for first-time homebuyers or 5% for repeat buyers. PMI is required for down payments below 20%, but it can be removed once the borrower reaches 20% equity in the home.

Interest rates for conventional loans are typically lower than those for non-conforming loans, such as jumbo or non-QM loans. Rates generally range from 5-6%, depending on the borrower’s credit score, loan term, and market conditions. Borrowers with excellent credit scores (740 or higher) and a larger down payment will qualify for the best rates. Conventional loans offer more flexibility in terms of loan options, including fixed-rate mortgages (15, 20, or 30 years) and adjustable-rate mortgages (ARMs).

To qualify for a conventional loan, borrowers typically need a credit score of at least 620, though a score of 740 or higher is preferred for the best terms. The DTI ratio should generally be below 45%, though some lenders may allow higher ratios for well-qualified borrowers. Conventional loans are available for primary residences, second homes, and investment properties, making them a versatile option for a wide range of borrowers. However, because they are not government-insured, borrowers must meet stricter credit and financial requirements compared to FHA or VA loans.