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Conventional Loans

Conventional loans are actually any type of creditor agreement that are not financed by the Veterans Administration (VA), or supported by the Federal Housing Administration (FHA). In general, all conventional loans are protected by the government sponsored entities such as Fannie Mae (FNMA) and Freddie Mac (FHLMC).

There are two different types of Conventional loans: Conforming and Non-Conforming loans. Conforming loans have to meet the guidelines set by Fannie Mae (FNMA) and Freddie Mac (FHLMC). Any loan which does not meet these guidelines is a non-conforming loan.

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As Little As 3% Down

It’s possible for first-time home buyers to get a conventional mortgage with a down payment as low as 3%. However, the down payment requirement can vary based on your personal situation and the type of loan or property you’re getting.

Private Mortgage Insurance

If you put down less than 20% on a conventional loan, you’ll be required to pay for private mortgage insurance (PMI). PMI protects your mortgage investors in case you default on your loan. The cost for PMI varies based on your loan type, your credit score and the size of your down payment.


The nice thing about PMI is that it won’t be part of your loan forever – that is, you won’t have to refinance to get rid of it. When you reach 20% equity in the home on your regular mortgage payment schedule, you can ask your lender to remove the PMI from your mortgage payments.

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Loan Size

For a conforming conventional loan, your loan must fall within the loan limits set by Fannie Mae and Freddie Mac. The loan limit changes annually. For 2022, the conforming loan limit for a single-family home is $726,200.

Credit Score & DTI

Credit score: In most cases, you’ll need a credit score of at least 620 to qualify for a conventional loan. When you apply, your lender will check your credit history to determine if you have good credit.


In addition, your debt-to-income ratio (DTI) is a percentage that represents how much of your monthly income goes to pay off debts. You can calculate your DTI by adding up the minimum monthly payments on all your debts (like student loans, auto loans and credit cards) and dividing it by your gross monthly income. For most conventional loans, your DTI must be 50% or lower.

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How Is A Conventional Mortgage Different Than Other Loan Types?

Let’s take a look at how conventional loans compare to some other popular loan options.

Conventional Loans Vs. VA Loans

While conventional loans are available to anyone who can meet the requirements, VA loans are a benefit of military service, only available to veterans, active-duty service members and their surviving spouses.


The requirements for VA loans are similar to that of conventional loans. VA loans, however, come with a few excellent benefits.


First, VA loans don’t require a down payment. Second, VA loans never require you to pay mortgage insurance.


If you’re thinking about getting a VA loan instead of a conventional loan, here are a few things to consider:

  • You can’t use a VA loan to buy a second home. The Department of Veterans Affairs requires that VA loan holders occupy the home they purchased with a VA loan. Second homes and vacation homes are not allowed through VA loans.

  • You’ll have to pay a funding fee. The VA funding fee offsets the cost to taxpayers of getting the VA loan. Certain groups (surviving spouses, those on VA disability and Purple Heart recipients serving in an active-duty capacity) are exempt from paying the funding fee. The funding fee ranges from 1.25% to 3.3% of the loan amount and varies based on your down payment , whether you’re buying a home or refinancing and how many times you’ve used your VA loan benefit.

Conventional Loans Vs. FHA Loans

Conventional loans have stricter credit requirements than FHA loans. FHA loans, which are backed by the Federal Housing Administration, offer the ability to get approved with a credit score as low as 500 with a 10% minimum down payment. Credit scores above 580 only require a minimum down payment of 3.5%. While conventional loans offer a slightly smaller down payment (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. If you put less than 10% down on an FHA loan, you’ll have to pay a mortgage insurance premium for the life of the loan – regardless of how much equity you have. On the other hand, you won’t have to pay private mortgage insurance on a conventional loan once you reach 20% equity.

Conventional Loans Vs. USDA Loans

While conventional loans are available in all areas of the country, USDA loans* can only be used to purchase properties in qualifying rural areas. Those who qualify for a USDA loan may find that it’s a very affordable loan compared to other loan options. Although Rocket Mortgage doesn’t offer USDA loans currently, we’re providing this information to you to help you understand all of your choices for mortgages.


There’s no maximum income for a conventional loan, but USDA loans have income limits that vary based on the city and state where you’re buying the home. When evaluating your eligibility for a USDA loan, your lender will consider the incomes of everyone in the household – not just the people on the loan.


USDA loans don’t require borrowers to pay private mortgage insurance (PMI), but they do require borrowers to pay a guarantee fee, which is similar to PMI. If you pay it upfront, the fee is 1% of the total loan amount. You also have the option to pay the guarantee fee as part of your monthly payment. The guarantee fee is usually more affordable than PMI.

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