{"id":324360,"date":"2024-12-09T23:59:52","date_gmt":"2024-12-10T04:59:52","guid":{"rendered":"https:\/\/www.houzeo.com\/blog\/?p=324360"},"modified":"2025-02-04T02:01:16","modified_gmt":"2025-02-04T07:01:16","slug":"conventional-loan","status":"publish","type":"post","link":"https:\/\/www.houzeo.com\/blog\/conventional-loan\/","title":{"rendered":"Conventional Loan: What Are the Requirements and How to Apply?"},"content":{"rendered":"\n<p class=\"highlight\"><a href=\"https:\/\/www.nar.realtor\/sites\/default\/files\/documents\/2024-home-buyers-and-sellers-generational-trends-04-03-2024.pdf\" target=\"_blank\" rel=\"noreferrer noopener nofollow\">66%<\/a> of home buyers opted for a conventional loan in 2024. They are non-government backed loans that can help you qualify for larger mortgages and get your dream home!<\/p>\n\n\n\n<p>A conventional loan has less stringent requirements than a government loan. Plus, you might be able to negotiate seller concessions of up to 6%, potentially saving thousands on your upfront expenses.<\/p>\n\n\n\n<p>But before you opt for a loan, get a pre-approval to determine your loan amount and budget your&nbsp;<a href=\"https:\/\/www.houzeo.com\/blog\/average-mortgage-payment\/\" target=\"_blank\" rel=\"noreferrer noopener\">monthly payments<\/a>. <\/p>\n\n\n\n<h2 class=\"margin-top-28 wp-block-heading\" id=\"what-are-conventional-loans\"><strong>What Is a Conventional Loan?<\/strong><\/h2>\n\n\n\n<p>A conventional loan is a <a href=\"https:\/\/www.houzeo.com\/blog\/what-is-a-mortgage\/\" target=\"_blank\" rel=\"noreferrer noopener\">mortgage<\/a> that you get from credit unions, private banks, and mortgage companies. It is not backed by any government agency. <\/p>\n\n\n\n<h3 class=\"margin-top-15 wp-block-heading\"><strong>How Does a Conventional Mortgage Work?<\/strong><\/h3>\n\n\n\n<p>Conventional mortgages work on the basis of loan terms: <\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Fixed-Rate Mortgage:<\/strong> In this, your interest rate remains fixed for 15 or 30 years over the life of the loan. <\/li><li><strong>Adjustable-Rate Mortgage:<\/strong> In this, your interest will remain fixed for a specific period for 5 or 7 years, and then change annually over the life of the loan.<\/li><\/ul>\n\n\n\n<h2 class=\"margin-top-28 wp-block-heading\" id=\"Conventional-Loan-Requirements\"><strong>What Are Conventional Loan Requirements?<\/strong><\/h2>\n\n\n\n<p>Conventional loans come with specific requirements that borrowers must meet to qualify. Here&#8217;s a breakdown of the criteria:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Credit Score: <\/strong>620 is the minimum credit score required. Anything higher than that can help you secure better rates.&nbsp;<\/li><li><strong>Down Payment:<\/strong> Generally you require a down payment of 3% to 20%. <\/li><li><strong>Private Mortgage Insurance (PMI):<\/strong> If your down payment is lower than 20%, you will require a <a href=\"https:\/\/www.houzeo.com\/blog\/what-is-pmi\/\" target=\"_blank\" rel=\"noreferrer noopener\">Private Mortgage Insurance<\/a> (PMI). <\/li><li><strong>Debt-To-Income (DTI) Ratio:<\/strong> Typically, most lenders prefer a DTI ratio below 43%.<\/li><li><strong style=\"color: initial; text-align: var(--bs-body-text-align);\">Property Requirements: <\/strong><span style=\"color: initial; font-weight: var(--bs-body-font-weight); text-align: var(--bs-body-text-align);\">Your property must be a primary residence, a second home, or an investment. Additionally, you also require a <a href=\"https:\/\/www.houzeo.com\/blog\/home-appraisal\/\" target=\"_blank\" rel=\"noreferrer noopener\">home appraisal<\/a> to determine your property value. <\/span><\/li><\/ul>\n\n\n\n<h2 class=\"margin-top-28 wp-block-heading\" id=\"Types-of-Conventional-Loans\"><strong>What Are the Types of Conventional Loans?<\/strong><\/h2>\n\n\n\n<p>Conventional loans can be categorized into two main categories:<\/p>\n\n\n\n<h3 class=\"margin-top-15 wp-block-heading\"><strong>1.<\/strong> <strong>Conforming Loan<\/strong><\/h3>\n\n\n\n<p>Conforming loans follow the criteria established by Fannie Mae and Freddie Mac. These include borrower financial stability standards, specific loan limitations, credit score, <a href=\"https:\/\/www.houzeo.com\/blog\/what-is-a-down-payment\/\" target=\"_blank\" rel=\"noreferrer noopener\">down payment<\/a> options, and more.&nbsp; <\/p>\n\n\n\n<p>The FHFA determines the <a href=\"https:\/\/www.houzeo.com\/blog\/conforming-loan-limits\/\" target=\"_blank\" rel=\"noreferrer noopener\">conforming loan limits<\/a>, which is $766,550 in 2024 (and $1,089,300 for high-cost areas). <\/p>\n\n\n\n<h3 class=\"margin-top-15 wp-block-heading\"><strong>2. Non-Conforming Loans<\/strong><\/h3>\n\n\n\n<p>Non-conforming loans, also known as&nbsp;<a href=\"https:\/\/www.houzeo.com\/blog\/jumbo-loan\/\" target=\"_blank\" rel=\"noreferrer noopener\">jumbo loans<\/a>, exceed the loan limits set by government-backed agencies.&nbsp;These loans are ideal to purchase luxury homes or properties in high-cost areas. <\/p>\n\n\n\n<h2 class=\"margin-top-28 wp-block-heading\" id=\"Conventional-Loans-vs-FHA-Loans\"><strong>Conventional Loans vs. FHA Loans<\/strong><\/h2>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Factors<\/strong><\/td><td><strong>Conventional Loans<\/strong><\/td><td><strong>FHA Loans<\/strong><\/td><\/tr><tr><td>Down Payment<\/td><td> 3% to 20% down payment.<\/td><td>3.5% to 20% down payment. <\/td><\/tr><tr><td>Credit Score:<\/td><td>620 or higher.<\/td><td>580 or higher.<\/td><\/tr><tr><td>Property Types<\/td><td>Used for primary residences, second homes, vacation properties, and investment properties.&nbsp;<\/td><td>Only used for primary residences and agricultural properties.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"margin-top-28 wp-block-heading\" id=\"How-to-Apply-For-a-Conventional-Loan\"><strong>How to Apply For a Conventional Loan?<\/strong><\/h2>\n\n\n\n<p>Here&#8217;s how you can apply for a conventional loan: <\/p>\n\n\n\n<ol class=\"wp-block-list\"><li><strong>Get a Mortgage Preapproval: <\/strong>A <a href=\"https:\/\/www.houzeo.com\/blog\/mortgage-preapproval\/#Step-6\" target=\"_blank\" rel=\"noreferrer noopener\">pre-approval<\/a> letter indicates that you are a serious buyer and can likely secure a mortgage. <\/li><li><strong>Shop For a Lender:<\/strong> Compare lender fees and <a href=\"https:\/\/www.houzeo.com\/pros\/mortgage-lenders-near-me\" target=\"_blank\" rel=\"noreferrer noopener\">look for lenders<\/a> who offer flexible terms. <\/li><li><strong>Fill Out the Loan Application: <\/strong>Provide personal and financial information, like pay stubs, tax returns, and bank statements. <\/li><li><strong style=\"color: initial; text-align: var(--bs-body-text-align);\">Undergo Loan Underwriting: <\/strong><span style=\"color: initial; font-weight: var(--bs-body-font-weight); text-align: var(--bs-body-text-align);\">Your lender will assess your creditworthiness and verify your documents. This process also involves home appraisal, property inspection, and title search.<\/span><\/li><li><strong>Close on the Loan:<\/strong> Once approved, sign the loan documents, make a down payment and pay <a href=\"https:\/\/www.houzeo.com\/blog\/how-much-are-closing-costs\/\" target=\"_blank\" rel=\"noreferrer noopener\">closing costs<\/a>.<\/li><\/ol>\n\n\n\n<h2 class=\"margin-top-28 wp-block-heading\" id=\"Pros-and-Cons-of-a-Conventional-Loan\"><strong>What Are the Pros and Cons of a Conventional Loan?<\/strong><\/h2>\n\n\n\n<h3 class=\"margin-top-15 wp-block-heading\"><strong>Pros<\/strong><\/h3>\n\n\n\n<ul class=\"wp-block-list\"><li><strong style=\"color: initial; text-align: var(--bs-body-text-align);\">Higher Loan Limits:<\/strong><span style=\"color: initial; font-weight: var(--bs-body-font-weight); text-align: var(--bs-body-text-align);\"> You can finance expensive homes, especially in high-cost areas.<\/span><\/li><li><strong>No Upfront Insurance Premium:<\/strong> Unlike FHA loans, there is no upfront <a href=\"https:\/\/www.houzeo.com\/blog\/fha-mortgage-insurance-premium\/#what-is-fha-insurance\" target=\"_blank\" rel=\"noreferrer noopener\">mortgage insurance premium<\/a>. You have to only pay PMI for down payment below 20%.<\/li><li><strong>Easier to Refinance:<\/strong> More straightforward refinancing options once equity is built.<\/li><li><strong>Better Rates for High Credit Scores:<\/strong> Get competitive rates with a <a href=\"https:\/\/www.houzeo.com\/blog\/what-is-a-good-credit-score\/#What-Is-a-Good-Credit-Score?\" target=\"_blank\" rel=\"noreferrer noopener\">good credit score<\/a> (620+).<\/li><\/ul>\n\n\n\n<h3 class=\"margin-top-15 wp-block-heading\"><strong>Cons<\/strong><\/h3>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Higher Down Payment:<\/strong> Requires a larger down payment, usually 20%.<\/li><li><strong>Stricter Credit Requirements:<\/strong> Requires a higher credit score (minimum 620).<\/li><li><strong>Tighter DTI Limits:<\/strong> Generally, your <a href=\"https:\/\/www.houzeo.com\/blog\/debt-to-income-ratio\/\" target=\"_blank\" rel=\"noreferrer noopener\">debt-to-income ratio<\/a> needs to be below 45%.<\/li><li><strong>Higher Closing Costs:<\/strong> Can have higher closing costs than FHA loans.<\/li><\/ul>\n\n\n\n<h2 class=\"margin-top-28 wp-block-heading\" id=\"Downpayment-Assistance\"><strong>Is Down Payment Assistance Available With a Conventional Loan?<\/strong><\/h2>\n\n\n\n<p>You can get <a href=\"https:\/\/www.houzeo.com\/blog\/down-payment-assistance\/\" target=\"_blank\" rel=\"noreferrer noopener\">Down Payment Assistance<\/a> (DPA) with a conventional loan. A DPA can provide grants or loans to help cover a portion of your down payment. DPA programs are offered by the state and local governments, local housing Authorities, and<span style=\"color: initial; font-weight: var(--bs-body-font-weight); text-align: var(--bs-body-text-align);\"> lenders<\/span>. <\/p>\n\n\n\n<h2 class=\"margin-top-28 wp-block-heading\" id=\"Should-You-Opt-for-a-Conventional-Loan\"><strong>Should You Opt for a Conventional Loan?<\/strong><\/h2>\n\n\n\n<p>You should opt for a conventional loan if you have a credit score of 620 or above. This will help you secure interest rates below 7%. <\/p>\n\n\n\n<p>To maximize your benefits, you can save for a larger down payment and avoid PMI. So, why wait? Start your home-buying journey now! <\/p>\n\n\n\n<p><strong>\u00bb Need More Clarity?&nbsp;<\/strong>Read these exclusive&nbsp;<a href=\"https:\/\/www.realestatequeen.com\/houzeo-reviews\/\" target=\"_blank\" rel=\"noreferrer noopener\">Houzeo reviews<\/a>&nbsp;and learn why the platform is the best in America\u2019s competitive housing market.<\/p>\n\n\n\n<h2 class=\"margin-top-28 wp-block-heading\" id=\"faq\"><strong>Frequently Asked Question<\/strong><\/h2>\n\n\n\t\t<div class=\"wp-faq-schema-wrap wp-faq-schema-accordion\">\n\t\t\t\t\t\t<div class=\"wp-faq-schema-items\">\n\t\t\t\t\t\t\t\t\t<p class=\"ui-accordion-header\">\n\t\t\t\t\t\tWhat does a conventional loan mean?\t\t\t\t\t\t<span class=\"ui-accordion-header-icon ui-icon ui-icon-triangle-1-s\"><\/span>\n\t\t\t\t\t<\/p>\n\t\t\t\t\t<div class=\"ui-accordion-content\">\n\t\t\t\t\t\t<p>A <a href=\"#what-are-conventional-loans \">conventional home loan<\/a> is a loan you borrow from a private lender. Conventional mortgages are not subject to specific government regulations.<\/p>\n\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t\t\t<p class=\"ui-accordion-header\">\n\t\t\t\t\t\tHow much is the credit score needed for conventional loan?\t\t\t\t\t\t<span class=\"ui-accordion-header-icon ui-icon ui-icon-triangle-1-s\"><\/span>\n\t\t\t\t\t<\/p>\n\t\t\t\t\t<div class=\"ui-accordion-content\">\n\t\t\t\t\t\t<p>One of the <a href=\"#Conventional-Loan-Requirements \">requirements of a conventional loan<\/a> is a credit score of 620 or above.<\/p>\n\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t\t\t<p class=\"ui-accordion-header\">\n\t\t\t\t\t\tHow much down payment for conventional loan?\t\t\t\t\t\t<span class=\"ui-accordion-header-icon ui-icon ui-icon-triangle-1-s\"><\/span>\n\t\t\t\t\t<\/p>\n\t\t\t\t\t<div class=\"ui-accordion-content\">\n\t\t\t\t\t\t<p>You have to pay 3% for FRM and 5% for ARM as <a href=\"https:\/\/www.houzeo.com\/blog\/what-is-a-down-payment\/\" target=\"_blank\">down payment<\/a>. If you put less than 20% down, you need to pay PMI.<\/p>\n\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\n","protected":false},"excerpt":{"rendered":"<div class=\"new-excerpt\"><p class=\"small-desc\">66% of home buyers opted for a conventional loan in 2024. They are non-government backed loans that can help you qualify for larger mortgages and get your dream home! A conventional loan has less stringent...<\/p><\/div><div class=\"reading_date\"><span class=\"readtime\">4 mins read<\/span><span class=\"date\">Dec 09, 2024<\/span><\/div>","protected":false},"author":218,"featured_media":426117,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[42106,42100,36061,42103,42761,24924,42762,31999],"class_list":["post-324360","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized","tag-conventional-laon","tag-conventional-loan-down-payment","tag-conventional-loan-vs-fha","tag-conventional-mortgage-down-payment","tag-down-payment-for-conventional-loan","tag-fha-mortgage-vs-conventional","tag-what-is-conventional-financing","tag-what-is-conventional-loan"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Conventional Loan: What Are the Requirements and How to Apply?<\/title>\n<meta name=\"description\" content=\"A conventional loan is a non-government backed loan that requires 3% to 20% down payment. 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It has specific credit score and DTI requirements.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/www.houzeo.com\/blog\/conventional-loan\/","og_locale":"en_US","og_type":"article","og_title":"Conventional Loan: What Are the Requirements and How to Apply?","og_description":"A conventional loan is a non-government backed loan that requires 3% to 20% down payment. 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