Conventional Loan FAQ

1. What is a conventional loan?

A conventional loan is a mortgage not backed by the federal government. It’s offered by private lenders and can be either:

• Conforming – Meets Fannie Mae and Freddie Mac guidelines
• Non-conforming (Jumbo) – Exceeds conforming loan limits [1]

2. Who are conventional loans best for?

Conventional loans are ideal for:

• Borrowers with good credit (620+)
• Buyers who can make at least a 3% down payment
• Those who want to avoid long-term mortgage insurance
• Buyers of primary homes, second homes, or investment properties [2]

3. What are the credit score requirements?

• Minimum: 620
• Best rates: 740 or higher Higher scores generally mean lower interest rates [3].

4. How much is the minimum down payment?

• 3% for first-time buyers
• 5%–20% for most buyers
• 15%–25% for investment properties
  If you put down less than 20%, you’ll need Private Mortgage Insurance (PMI) [2].

5. What are the conventional loan limits for 2025?

• Standard limit: \$806,500 for a single-family home
• High-cost areas: Up to \$1,209,750
• Multi-unit properties: Up to \$2,326,875 for 4 units [4].

6. What is PMI and when can it be removed?

PMI (Private Mortgage Insurance) is required if your down payment is less than 20%. Unlike FHA loans, PMI can be canceled once you reach 20% equity [2].

7. What is the maximum debt-to-income (DTI) ratio?

Most lenders prefer 43% or lower, but some allow up to 50% with strong compensating factors [3].

8. Can I use gift funds for the down payment?

Yes. Conventional loans allow gift funds from family members or approved sources for down payment and closing costs [2].

9. Can I use a conventional loan for an investment property?

Yes. Conventional loans can finance primary residences, second homes, and rental properties [2].

10. What are the benefits of a conventional loan?

• Lower overall costs compared to FHA loans
• No upfront mortgage insurance premium
• PMI can be removed
• Flexible property types (primary, vacation, rental)
• Higher loan limits than FHA [1].

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References

[1] Conventional Loan Requirements and Benefits Guide

[2] Conventional Loans | Requirements & Guidelines for 2025

[3] Conventional Loan Requirements for 2025 – NerdWallet

[4] Conventional Loan Limits for 2025 – The Mortgage Reports