There are two primary categories of conventional mortgages:

  • Conforming

    A conforming mortgage follows the guidelines put in place by Freddie Mac and Fannie Mae, including loan limits.

  • Non-conforming

    These mortgages include both “jumbo loans” which exceed the loan limits imposed by government-backed agencies, niche products for unusual circumstances and riskier products that are much less common these days.

Why Choose a Conventional Loan?

Most home-buyers choose conventional mortgages because they offer the best interest rates and loan terms—usually resulting in a lower monthly payment. And since most people choose a fixed-rate loan over an adjustable-rate mortgage, they don’t have to worry about rising mortgage rates, which makes it easier to budget.

How Do I Qualify for a Conventional Loan?

Down payment

Stable Income

Have a good credit score

The standard down payment for a conventional loan is anywhere between 3 and 25 percent of a home's value depending on the borrower's credit and financial condition. For example, a $100,000 home could require a $20,000 down payment.

However, depending on a lender's unique specifications, a borrower may be able to put down as little as 3 percent at closing. Just keep in mind, this option is typically only available to those who meet additional requirements, like being a first-time home-buyer. Remember, with a larger down payment, homeowners also enjoy immediate equity in their home.

To qualify for a conventional loan, your monthly mortgage payments and monthly non-mortgage debts must fall within certain ranges. For instance, a lender may require your monthly mortgage payments (which may include taxes and insurance) not exceed 28 percent of your gross monthly income. In addition, your monthly mortgage payments, when combined with your other monthly debt payments (car loans, student loans, credit card bills, etc.), may be limited to a maximum of 36 percent of your gross monthly income.

Your credit score also plays an integral role when qualifying for a conventional loan. In fact, most lenders require a minimum FICO credit score of around 620 to obtain approval.

FHA loans

VA loans

USDA loans

Jumbo loans

FHA loans are aimed at borrowers who can’t afford a size-able down payment, have high debt-to-income ratios or less than stellar credit.

VA loans are reserved for active-duty military and veterans.

USDA loans are for low to moderate income borrowers living in rural areas.

Jumbo loans are intended for excellent borrowers with excellent credit looking to finance loan amounts greater than the amount allowed by Fannie Mae or Freddie Mac.

What are Non-Conventional Loans?

Capital International Financial, Inc.

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