A conventional mortgage is a home loan that’s not insured or guaranteed by the U.S. government. Qualifying home buyers can use conventional mortgages to purchase a primary residence, second home, or investment property.
You don't need a 20% down payment to get a conventional loan. Some programs allow down payments as low as 5% or even 3%. In other words, it’s easier to qualify for a conventional loan than you might think!
This guide breaks down conventional loan requirements — and how they compare to other types of mortgages — to help you choose the best loan to fit your needs.
🏡 Need a realtor? Try Clever Real Estate’s free agent matching service. Match with top local buyer’s agents nationwide, qualify for cash back after closing! Learn more.
Actual requirements for a conventional home loan will ultimately depend on the specific lender and circumstances surrounding the home purchase. But most lenders conform to the approval standards set by quasi-government agencies Fannie Mae and Freddie Mac (hence the term “conforming loan”).
It's not as difficult to get a conventional loan as you might think. Chances are you’ll be able to qualify for a conventional loan so long as you:
While conventional loans generally have higher qualification standards than government-backed loans — and lenders are free to set stricter standards than Fannie and Freddie’s minimum qualification criteria — most home buyers are still able to secure approval. In fact, nearly 80% of all mortgages in the U.S. are conventional loans. [1]
If you have a less-than-stellar credit history or credit score, lower income, or limited savings for a down payment, you may want to consider a government-backed mortgage that offers more flexibility and relaxed eligibility criteria.
Federal Housing Authority (FHA) loans offer more flexibility than conventional loans when it comes to credit scores and down payments. You can qualify for an FHA loan with a credit score as low as 500 with a 10% down payment. If your credit score is 580 or higher, you can get approved with as little as 3.5% down.
The big drawback with FHA loans is, if you put down less than 10%, you’ll have to pay additional mortgage insurance premiums (MIP) for the entire life of the loan. With conventional loans, you’ll have to pay private mortgage insurance (PMI) — but you can remove it once your equity stake reaches 20%.
The Department of Veterans Affairs (VA) offers loans for veterans, active-duty military, and surviving spouses. The two biggest benefits of VA loans are:
But unlike conventional loans, you can’t use a VA loan to buy a second home. And you’ll also have to pay a funding fee upfront at closing – usually 1.25% to 3.3% of the total loan amount, depending on a variety of factors (though some applicants can secure funding fee exemptions).
The United States Department of Agriculture (USDA) offers loans in certain designated rural areas. Like VA loans, USDA loans don’t require buyers who meet certain criteria to make a down payment. Low-income borrowers can also get low interest rates (sometimes as low as 1%) and home improvement funding for homes in need of rehab after purchase.
USDA loans are only available for properties in qualifying areas, have maximum income limits for applicants, and generally require a minimum credit score of 640. USDA borrowers will also have to pay upfront or annual “guarantee fees,” similar to PMI (though guarantee fees are generally lower than PMI).
⚡️ Quick Tip: Finding a buyer's agent is a good first step!
Connecting with an experienced local agent is a good first step to kickstart your home buying process. Agents can help you set a budget and recommend trusted lenders so you can compare rates, get preapproved, and start touring houses.
We recommend trying out Clever Real Estate’s free agent matching service. Clever matches you with the best local buyers agents with no obligation. And you can qualify for cash back — that’s money back to your pocket on a $400,000 home purchase! Learn More.