What Is a Conventional Loan?


A conventional loan is a type of mortgage that is not insured or guaranteed by the federal government. These loans are offered by private lenders and follow guidelines set by Fannie Mae and Freddie Mac. They are ideal for borrowers with strong credit and stable income.

Conventional Loan Requirements

Credit Score: A minimum credit score of 620 is typically required (higher scores get better rates).

Debt-to-Income (DTI) Ratio: Generally must be 43% or lower, though some lenders allow up to 50%.

Down Payment: At least 3% down for qualified buyers; 20% avoids Private Mortgage Insurance (PMI).

Stable Income & Employment: Proof of steady income and employment history is essential.

Benefits of a Conventional Loans

  • Lower Costs Over Time

    No upfront mortgage insurance and the option to cancel PMI once you reach 20% equity.

  • Flexible Loan Options

    Available in various terms (15, 20, 30 years) and for different property types.

  • Higher Loan Limits

    Allows for higher borrowing amounts compared to government-backed loans.

Who Qualifies For a Conventional Loan?

✓ Buyers with strong credit scores

✓ Those with a steady income and employment history

✓ Borrowers with manageable debt

✓ Individuals who can make at least a 3% down payment

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Conventional Loan Process

1

Pre-Approval

The first step in the conventional loan process is getting pre-approved by a lender. This involves submitting financial documents, such as your credit report, income verification, and employment details. The lender will review these documents to determine how much you can borrow, giving you a pre-approval letter that helps guide your home search.

2

Identifying the Property

After receiving pre-approval, you can begin looking for properties within your approved price range. Conventional loans typically require that the property be a primary residence, although some lenders may allow second homes or investment properties. Your real estate agent can help you find a home that meets both your needs and the lender’s requirements.

3

Underwriting

Once your offer on a home is accepted, the lender sends your application to underwriting. During this stage, the underwriter carefully reviews your financial documents, including tax returns, pay stubs, bank statements, and your credit history. They also order an appraisal of the property to assess its value and condition. The goal is to verify your ability to repay the loan and ensure the property is worth the amount you’re borrowing.

4

Final Loan Approval

If the underwriter is satisfied with the application and appraisal, your loan moves to final approval. The lender will issue a commitment letter outlining the terms of the loan. If necessary, they may request additional information or documentation. Once all conditions are met, you’ll receive final loan approval.

5

Closing

The final step in the conventional loan process is closing. During this stage, you’ll sign the loan documents and any other required paperwork. You’ll also pay any closing costs and the down payment, if applicable. Once everything is signed and the funds are disbursed, you’ll receive the keys to your new home.

Who Can Finance with a Conventional Loan

First-time homebuyers

Homeowners refinancing their existing mortgage

Repeat buyers

Buyers of primary, vacation, or investment properties

Frequently Asked Questions for Conventional Loan

  • Yes, but you’ll need to pay PMI until you reach 20% equity.

  • It depends on your financial profile—conventional loans are better for those with higher credit scores.

  • Yes, with proper income documentation and tax returns.

  • Typically 30 to 45 days from application to closing.

  • Generally, conventional loans are not assumable, meaning a new buyer cannot take over your loan terms. Assumable loans are more common with FHA, VA, and USDA loans.

  • A conventional home loan is a mortgage not backed by a government agency. It’s offered by private lenders and typically follows Fannie Mae or Freddie Mac guidelines.

  • FHA loans are government-backed and easier to qualify for with lower credit and down payment requirements. Conventional loans require stronger credit but can cost less over time and don’t require mortgage insurance once you reach 20% equity.

Success Stories

❝

Michael & Sarah Rodriguez

★ ★ ★ ★ ★

Working with this team made the complicated Los Angeles market much easier to navigate. Their expertise in conventional loans saved us thousands in interest and helped us close quickly on our Silver Lake home.

First-time homebuyers

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James & Amelia Wilson

★ ★ ★ ★ ★

The 203K loan process seemed intimidating at first, but this team guided us through every step. We were able to transform a fixer-upper in Highland Park into our dream home while staying within our budget. Their contractor recommendations were excellent.

Renovation loan clients

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David Chen

★ ★ ★ ★ ★

After being turned down by two other lenders, I was losing hope of being able to purchase and renovate my first property. This team not only got my FHA 203K loan approved, but they also helped me understand exactly what renovations would add the most value in my Echo Park neighborhood.

Self-employed borrower

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