Understanding Conventional Loans: A Guide for Homebuyers

When it comes to buying a home, one of the first questions most buyers face is: “Which type of mortgage is right for me?” For many, a conventional loan is a strong option. But what exactly does that mean?

A conventional loan is a mortgage not insured or guaranteed by the government. Instead, it’s offered through private lenders, like banks or credit unions. These loans can be used for a primary residence, a second home, or even an investment property, giving borrowers a wide range of possibilities.

Why choose a conventional loan? Conventional loans offer flexibility and competitive interest rates. With options for low down payments—as little as 3% for qualified first-time buyers—they can make homeownership more accessible. If you’re able to put 20% down, you can also avoid private mortgage insurance (PMI), which is an added monthly cost when your down payment is smaller.

Conventional loans typically require a good credit score and a stable financial profile. They can be either fixed-rate, with consistent payments over the life of the loan, or adjustable-rate, which can start lower but fluctuate over time. Because they’re privately funded, conventional loans may have stricter qualification requirements than FHA or VA loans, but they also offer the freedom to finance properties that government-backed loans might not cover.

For buyers looking to maximize their options and customize their mortgage, conventional loans provide the tools and flexibility needed to create a plan that fits their unique goals. Whether you’re buying your first home, moving up to your dream home, or investing in real estate, a conventional loan can be a smart choice.

FAQs

  • A conventional loan is a mortgage not insured or guaranteed by the government. It’s offered by private lenders and can be used for primary residences, second homes, or investment properties.

  • Borrowers typically need a stable income, a good credit score (usually 620+), and a manageable debt-to-income ratio. Stronger credit and financial profiles can secure better rates

  • First-time homebuyers may qualify for as little as 3% down, while other borrowers often put 5–20%. A 20% down payment helps avoid private mortgage insurance (PMI).

  • PMI is an insurance policy that protects the lender when your down payment is less than 20%. It’s usually a small monthly fee added to your mortgage payment and can often be removed once you reach 20% equity.

  • Yes, conventional loans can finance primary homes, second homes, or multi-unit investment properties. Requirements and interest rates may vary based on the property type and occupancy.

  • Conventional loans often have competitive interest rates, flexible loan terms, and options for low down payments. They also allow for property types that some government-backed loans may not cover.

  • They can be either. Fixed-rate mortgages have a consistent interest rate for the life of the loan, while adjustable-rate mortgages (ARMs) may start lower but can fluctuate over time.

  • Rates depend on your credit score, down payment, debt-to-income ratio, and overall financial profile. A higher credit score and larger down payment typically result in a lower rate.

  • Yes. The Federal Housing Finance Agency (FHFA) sets conforming loan limits, which vary by county. Loans above this limit are considered jumbo loans.

  • Absolutely! Conventional loans can be refinanced to lower your rate, shorten the term, or access equity in your home. Some borrowers even switch from an adjustable-rate to a fixed-rate loan for stability.

  • We can close these loans in as little as 2 weeks, but most contracts are written to close within 30–45 days, and timing can vary based on lender processes, appraisal schedules, and document requirements.

  • Yes, many conventional loan programs allow you to use gift funds from family members or other approved sources to cover your down payment or closing costs.

  • Conventional loans are private and not government-insured. They often have stricter credit requirements but avoid ongoing mortgage insurance (if 20% down), whereas FHA loans have lower credit requirements but require mortgage insurance premiums.

  • Closing costs are similar to other loan types and can vary by lender. Typical costs include appraisal, title insurance, and origination fees. Sometimes, sellers can contribute to closing costs to help reduce your out-of-pocket expense.

  • Conventional loans offer flexibility, competitive rates, and options for low or high down payments. They’re ideal for borrowers with strong credit who want to avoid long-term mortgage insurance or who want to finance properties not eligible for government-backed loans.