Ultimate Guide to Conventional Mortgage Loans in 2025

In the U.S., conventional mortgages are the most common type of home loan. They are flexible and have competitive terms for borrowers who meet the requirements. Fannie Mae and Freddie Mac set rules that many conventional mortgages follow, but they aren't insured by the VA, USDA, or FHA like government-backed loans are. Conventional loans are a simple way to buy a home because they have low down payments (as low as 3%), higher loan limits, and fewer fees than some government programs. If you're buying your first home, a second home, or investing in property, knowing how conventional loans work can help you decide if this popular choice is right for you.

Key Takeaways

• The government doesn't back conventional loans, but a lot of them follow Fannie Mae and Freddie Mac rules to help lenders manage risk.
• First-time homebuyers only need to put down 3% of the purchase price, and repeat buyers need to put down 5%. PMI is required on down payments less than 20%.
• The base loan limit for 2022 is $647,200, which lets you buy a bigger home than some government loan programs do.
• A minimum credit score of 620 is needed, but borrowers with good credit and a large down payment can get better rates.
• Because there are no extra eligibility requirements, conventional loans usually have fewer fees and take less time to process than government loans.
• These loans are good for a lot of things, like buying your first home, buying a second home, or investing in real estate.

Conventional mortgages dominate the U.S. housing market and are often the first type that comes to mind for borrowers. This mortgage type, considered traditional and standard, offers numerous benefits. But what exactly is a conventional loan and what makes it advantageous?

A conventional mortgage lacks backing or guarantees from government agencies like the VA, USDA, and FHA. However, many still adhere to guidelines set by government-sponsored enterprises such as Fannie Mae and Freddie Mac, which purchase these mortgages from lenders to mitigate risks.
Additionally, some lenders offer non-conforming loans that don’t meet government agency guidelines, potentially resulting in slightly higher rates.

So What Are the Benefits of Conventional Loans?

• Widely available at most lenders, with no special eligibility requirements to qualify, such as a VA Loan only being offered to veterans or active-duty military.
• Generally speaking, conventional total loan limits are higher and allow for larger home purchases. The new 2022 base loan limit will be $647,200. You can still borrow more than the limit, but you will have to apply for a jumbo loan.
• Down payments as low as 3% allow more borrowers to realize their dreams of homeownership. Private Mortgage Insurance (PMI) can be avoided with down payments of 20% or more.
• Loan processing may be faster because there are no additional government eligibility requirements.
• Flexible repayment plans.
• Fewer fees than with some government loans (lenders can set their own fees for conventional loans). At AmeriSave, for example, our conventional loans have no loan origination fees.
• Ideal for borrowers with a strong credit history and a good down payment, as they can qualify for lower interest rates, including both fixed-rate or adjustable-rate (ARM) loans. (Add to that, AmeriSave already offers competitively low conventional mortgage rates.)
• First-time homebuyers can benefit from conventional loans, though those with lower credit scores might consider a first-time home buyer program, which provides options for assistance with closing costs and your down payment. You can also learn about smart alternatives to putting 20 percent down on a home that can help cut initial costs.
• A viable option for borrowers making repeat purchases and those buying second homes or investment properties.

Conventional Home Loan Requirements

Specific approval guidelines must align with requirements set by Fannie and Freddie, but can vary from lender to lender. Some of AmeriSave’s general requirements for conventional loans include:

• A minimum credit score of 620
• Minimum down payment of 3% for first-time homebuyers (those who have not owned a home in the last 3 years) or 5% otherwise.
• A recent full exterior and interior home appraisal
• Continuation of your current job throughout the entire loan process and avoiding major purchases, such as a new vehicle.

How to qualify

Conventional loans are suitable for borrowers with stable, full-time income. Self-employed individuals can also qualify if they demonstrate reliable and continuing income. Refer to our guide to getting a mortgage when self-employed to understand home financing requirements. Even if you’re unsure about your financial eligibility, the flexibility of conventional loan programs makes them worth pursuing. They offer a solid pathway to homeownership for those with solid credit and lower down payment amounts. Better financial health provides access to improved loan rate options.

Remember, failing to make a 20% down payment necessitates purchasing private mortgage insurance (PMI). Calculate its annual cost to determine its impact on your loan. PMI amounts on conventional loans vary with the down payment; higher down payments reduce PMI costs, making them advantageous.

If you find that you’re on the cusp of being an ideal conventional loan borrower, look at several different home loan options and, as always, shop around and get personalized rate quotes that reflect your situation, not just that of the average borrower. Like all mortgage rates, conventional rates can change quickly as the markets change. It’s a good idea to keep your eye on interest rate trends so you can be informed – and so you can be ready to lock in when rates drop. Our article on mortgage interest rates gives a comprehensive overview on how rates work and finding the best options when looking to buy a home. With a mortgage rate lock, your interest rate won’t change between the offer and the closing.

Do you still have questions about conventional loans? Contact us by phone or chat, and an AmeriSave mortgage banker will be happy to answer your questions. Our experienced staff can guide you through potential interest rates, terms, and closing costs, helping you determine if the popular conventional loan is right for you.