Ultimate Guide to Conventional Mortgage Loans

While finding the right loan for your home purchase can feel overwhelming, a conventional mortgage offers most buyers the clearest path to homeownership. By combining flexibility with competitive rates, a conventional loan is often the most appealing choice for those ready to buy.  

In this guide, we’ll help you unravel the ins and outs of a conventional home loan. Not only will we explain how they work, but we’ll delve into options, benefits, and key requirements so you can buy a home with confidence. 

What is a conventional home mortgage?

According to U.S. Census Bureau data, 73% of new, single-family houses sold in 2023 were purchased using a conventional home loan. What does this mean? 

A conventional home mortgage is a traditional loan that is not insured or backed by government agencies like the VA, USDA, or FHA. Instead, these loans adhere to guidelines set by Fannie Mae and Freddie Mac — government-sponsored enterprises that guarantee most of the mortgages in the U.S. 

As such, conventional loans typically require a higher credit score and a down payment, but they also offer competitive interest rates. These loans are a popular choice for borrowers with strong financial profiles who are looking for flexibility in their loan options (i.e., rates, terms, or down payments). 

How do conventional mortgage loans work?

Conventional mortgages typically offer fixed or adjustable interest rates, with repayment terms often ranging between 15 and 30 years. 

Once approved, borrowers receive a lump sum to purchase their home. They repay this loan through monthly installments, which typically include principal, interest, property taxes, and insurance managed through escrow. 

Conventional loans follow strict underwriting rules related to credit, income, and down payment, so not every would-be homebuyer will qualify. 

Types of conventional loans

A conventional home loan can come in several forms, allowing homeowners to choose which version best fits their goals and financial situations. Options include: 

• Fixed-rate mortgages: These mortgages offer a locked interest rate for the entire term of the loan — typically 15, 20, or 30 years — ensuring predictable monthly payments. 
• Adjustable-rate mortgages (ARMs): ARMs feature an initial fixed-rate period before periodically adjusting interest (both up and down) based on market conditions. 
• Conforming loans: This is a mortgage that meets Fannie Mae and Freddie Mac guidelines, including a loan limit ($766,550 in most areas for 2024) and borrower qualification requirements. 
• Non–conforming loans: These mortgages, such as jumbo loans, exceed Fannie Mae and Freddie Mac’s loan limits ($766,550 in most areas for 2024) or do not meet their qualification guidelines. 
• Interest-only loans: These loans allow borrowers to pay only interest (for lower payments) for a set period before transitioning to standard payments on principal and interest. 

What are the benefits of conventional loans?

A conventional loan offers several advantages that make these types of mortgages a top choice for many homebuyers. Unlike government-backed loans, they provide flexibility in terms, lower costs (usually), and wide accessibility. Other key benefits include: 

• Broad availability: Conventional loans are widely offered by most lenders and don’t require special eligibility criteria, like VA loans for military members or USDA loans for rural properties. 
• Faster loan processing: Since conventional loans don’t require additional government approval or special program qualifications, they often close faster than government-backed loans. 
• Lower costs and fewer fees: Borrowers may avoid certain government-related fees, and lenders have more flexibility in setting their own charges. Some lenders, like AmeriSave, even offer no loan origination fees. 
• Options for lower down payments: While putting 20% down eliminates private mortgage insurance (PMI), conventional loans allow down payments as low as 3%, making homeownership accessible for more people. 
• Investment and second home flexibility: Unlike other types of loans, conventional mortgages can be used for second homes or investment properties, giving buyers more financial opportunities. 

For homebuyers, a conventional loan often provides the best mix of affordability, flexibility, and streamlined approval, making it a go-to option for purchasing or refinancing a home. 

Conventional home loan requirements

To qualify for a conventional home loan, you’ll need to meet certain financial and property-related criteria. While requirements may vary by lender, most conventional mortgages follow guidelines set by Fannie Mae and Freddie Mac. Here are some of these key requirements: 

• Credit score: A minimum credit score of 620 is typically required for conventional loans. Higher scores can lead to better interest rates and terms. 
• Down payment: First-time homebuyers can qualify with as little as 3% down, while repeat buyers generally may need at least 5%.  
• Debt-to-income ratio (DTI): Most lenders prefer a DTI of 43% or lower. This means your total monthly debts, including mortgage, shouldn’t exceed 43% of your gross monthly income. Some lenders allow up to 50% with strong credit. 
• Loan limits: Conventional loans must stay within conforming loan limits set by the Federal Housing Finance Agency (FHFA). This is $766,550 in most areas, though these limits may be higher in expensive housing markets. 
• Private mortgage insurance (PMI): If your down payment is less than 20%, you must pay monthly for PMI. This protects the lender in case of default. Keep in mind that PMI can be removed once 20% equity is reached. 
• Employment and income stability: Borrowers are required to provide proof of steady income and employment, typically using W-2s, tax returns, and recent pay stubs. 
• Home appraisal: A full appraisal of the home and property is required to ensure it meets lender requirements and is worth the loan amounts. 

AmeriSave requirements

If you opt to secure a loan through AmeriSave, 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 for a conventional mortgage

If you already meet the above requirements, you’re in a strong position to move forward with the home buying process. If you’ve fallen short in one or more areas, however, there are ways to improve your eligibility for a conventional mortgage. 

If you don’t quite meet the requirements above, it’s time to focus, not fret. Consider these steps to strengthen your application: 

• Boost your credit score: Pay your bills on time, lower your credit card balances, and avoid opening new accounts before applying. 
• Lower your DTI ratio: Reduce existing debt or increase your income to meet lender limits. Paying off credit cards or student loans can make a huge difference. 
• Save for a larger down payment: While 3% is the minimum, putting more money down can improve your chances and help you avoid paying PMI. 
• Shop around for lenders: Not all lenders are the same. Some may be more flexible with credit scores and DTI limits. 

If you’re unsure where to start, an AmeriSave Mortgage Expert will be happy to answer your questions. Our experienced team can guide you through potential interest rates, terms, and closing costs, helping you determine if the popular conventional loan is right for you. 

Apply for a conventional loan with AmeriSave

Ready to take the next step toward homeownership? A conventional loan offers flexibility, competitive rates, and financing options that fit your needs. Whether you’re a first-time buyer or purchasing an investment property, AmeriSave makes the process simple with fast approvals and personalized loan solutions. 

Get started today with an easy online application and see how much home you can afford. Apply for a conventional mortgage with AmeriSave now and take the first step toward securing your dream home. 

Frequently asked questions

What are interest rates for a conventional mortgage?

Interest rates for a conventional mortgage vary based on loan term, type, and market conditions. According to Freddie Mac in 2024, 30-year fixed rate mortgage rates ranged from 6.08% to 7.22%.  

Who are conventional loans best for?

Conventional mortgages are best for borrowers with good credit and stable income who want flexible loan terms, competitive interest rates, and lower costs compared to government-backed loans. They’re ideal for first-time homebuyers, repeat buyers, second homes, and investment properties. 

What are the alternatives to conventional loans? 

Alternatives to conventional loans include FHA and VA loans, each designed for specific borrower needs: 

• FHA Loans are ideal for lower-credit borrowers. These loans allow down payments as low as 3.5% and have more flexible qualification standards. 
• VA Loans are available to veterans, active-duty military, and eligible spouses. VA loans offer no down payment, no PMI, and competitive rates. 

These government-backed options provide alternatives for buyers who may not qualify for a conventional mortgage.