A conventional loan is a home loan that is not insured or guaranteed by the government. Instead, it follows Fannie Mae and Freddie Mac guidelines for lending, making it a well-liked option for purchasers with decent credit and a stable income.

In contrast to FHA loans (insured by the Federal Housing Administration) or VA loans (for veterans and military personnel), conventional loans are not protected by the government—so lenders take on greater risk but offer lower fees and competitive interest rates to qualified buyers.

Who Qualifies for a Conventional Loan?

Eligibility for a conventional loan is based on factors like credit score, income, and debt-to-income (DTI) ratio. Here’s what most lenders look for:

• Credit Score:
  A minimum score of 620 is generally required, though scores over 700 are given better rates.
• Down Payment:
  As low as 3% for first-time buyers, though 20% eliminates private mortgage insurance (PMI).
• Debt-to-Income Ratio (DTI):
  Your DTI should be less than 43% for most lenders, meaning your monthly debt payments should be less than 43% of your income.
• Stable Income & Employment:
  You’ll need proof of stable income, usually with two years of tax returns or pay stubs.