What Is a Conventional Loan?
A conventional loan is a mortgage offered through private lenders like banks, credit unions, or mortgage companies and is not insured by a government agency. These loans can be conforming—meaning they meet the criteria set by Fannie Mae and Freddie Mac, or non-conforming, such as jumbo loans.
While government-backed loans like FHA or VA provide more lenient qualification terms, conventional loans offer greater flexibility in property types, including second homes and investment properties, and fewer long-term costs if you have a strong credit profile.
How Do Conventional Loans Compare to Government Loans?
The main difference between conventional and government-backed loans lies in who guarantees the loan. FHA, VA, and USDA loans are insured by the federal government. If a borrower defaults, the government reimburses the lender for a portion of the losses.
Because of this backing, government loans are often easier to qualify for with lower credit scores and smaller down payments. However, conventional loans don’t come with mandatory upfront mortgage insurance fees and allow you to cancel PMI once you reach 20% equity.
Who Should Consider a Conventional Loan?
Conventional loans are a great fit for buyers who:
- Have a solid credit score (typically 680+)
- Prefer flexible loan term options
- Want to avoid long-term mortgage insurance
- Plan to purchase a second home or investment property
Unlike government programs that restrict use to primary residences, conventional loans allow you to finance vacation homes and rental properties.
Benefits of a Conventional Loan
Lower Overall Loan Costs
While FHA and other government loans may offer lower upfront entry points, conventional loans tend to cost less over the life of the loan—especially if you avoid long-term mortgage insurance by putting down 20%.
Customization Flexibility
Choose from a variety of terms and interest structures. You can go with a 10, 15, 20, or 30-year mortgage and decide between fixed-rate or adjustable-rate options based on your financial goals.
Broad Property Eligibility
Conventional loans allow borrowers to purchase single-family homes, condos, duplexes, and even multi-unit investment properties, as long as they meet standard qualifications.
PMI Removal
Unlike FHA loans, where mortgage insurance may be required for the life of the loan, conventional borrowers can remove PMI once the loan reaches 80% of the home’s appraised value. This reduces your long-term monthly housing expenses.
Conventional Loan Requirements
Credit Score
Most lenders require a credit score of at least 620 to qualify for a conventional loan. At Revix, we work with a wide range of credit profiles, and we approve loans starting at 620. While borrowers with higher scores, especially above 720, may qualify for the most competitive interest rates, having a score in the 620–719 range can still open the door to affordable financing. We look at your entire financial picture, not just your credit score.
Down Payment
Conventional loans offer a range of down payment options. First-time homebuyers can put down as little as 3%. Putting down 20% eliminates the need for private mortgage insurance. A higher down payment can lower your monthly mortgage insurance costs and help you qualify for a better interest rate and overall monthly housing expense.
Debt-to-Income Ratio (DTI)
Most lenders want your total DTI, including your new mortgage payment, to be no more than 36%. Depending on the loan program and your credit profile, Revix allows DTI ratios from 45% to 50% based on your full financial picture.
What You Need to Apply for a Conventional Loan
Applying for a conventional mortgage requires submitting various documents that help lenders assess your eligibility:
- Proof of Income: Two years of W-2s and 30 days of recent pay stubs
- Employment History: Employer verification or tax documents for self-employed borrowers
- Credit Check: Full review of your credit report and score
- Bank and Asset Statements: Recent statements showing down payment and reserves
- ID Verification: A government-issued photo ID and your Social Security number
Having this paperwork ready in advance can speed up the approval process, give you more negotiating power, and help you move forward confidently.
FAQs: Conventional Loans and Borrower Questions
What credit score do I need for a conventional loan?
Most lenders require a minimum credit score of 620. A higher score, particularly above 720, can help you qualify for better interest rates and loan terms.
Can I get a conventional loan with a low down payment?
Yes. Qualified first-time buyers may be eligible with as little as 3% down. However, putting down 20% or more eliminates private mortgage insurance (PMI) and reduces monthly costs.
How is a conventional loan different from FHA or VA loans?
Conventional loans aren’t backed by the government. Compared to FHA or VA loans, they typically offer more flexibility for second homes or investment properties and can be less expensive over time for borrowers with strong credit.
Do I have to pay PMI with a conventional loan?
PMI is required when the down payment is under 20%, but it can be canceled once your loan-to-value ratio reaches 80%. FHA loans, by contrast, often require mortgage insurance for the life of the loan.
What types of properties can I buy with a conventional loan?
Conventional loans can be used to buy a variety of property types, including single-family homes, condos, duplexes, and qualifying multi-unit investment properties.
What documents will I need to apply?
Expect to provide income documents (W-2s, pay stubs, tax returns), proof of assets (bank statements), ID, and a credit check. If self-employed, you’ll also need business documentation such as a profit and loss statement.
Ready to Take the Next Step?
Conventional loans offer a powerful combination of flexibility, affordability, and long-term value, especially for borrowers with strong credit and stable income. Whether you’re a first-time homebuyer or a seasoned investor, the ability to choose your term length, avoid long-term mortgage insurance, and finance a wide range of property types makes conventional loans a leading choice.
At Revix, we’ll guide you through every step of the mortgage process to find the loan that fits your needs. Connect with a Revix loan advisor today to get pre-approved and take the next step toward homeownership.
