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Conventional loans are just between you and the lender. In other words, the payments aren’t guaranteed by either the Federal Housing Administration (FHA) or the Veterans Administration (VA). Therefore, banks impose more stringent requirements. They often require 10-20% of the total home value as a down payment. If they agree to just a 5% down payment, they will impose a mortgage insurance premium until your equity reaches 10 – 20%. This premium just adds to your monthly cost. As a result, you need more money to buy the house, and your monthly costs may be higher. The main difference between a conventional loan and other types of mortgages is the fact that a conventional loan is not made by a government entity nor insured by a government entity. It’s what is refer to as a non-GSE loan. A non-government sponsored entity. Types of government loans are FHA and VA loans. An FHA loan is insured by the government and a VA loan is backed by the government. Down payment requirements are different as well. The minimum down payment for an FHA loan is 3.5 percent. For a VA loan, the minimum down payment is zero.

Other types of Conventional Loans

Conventional mortgages include fixed rate mortgages, in which the interest rate is the same throughout the life of the loan, and part of each month’s payment goes towards paying off the principal and part goes toward interest. They can also be adjustable rate mortgages and interest-only loans, in which the interest rate varies. They can also be conforming and non-conforming. Most conforming loans are less than $417,000 for a single-family home ($625,000 in Alaska and Hawaii). That’s because they must conform to standards set by Fannie Mae and Freddie Mac. These two agencies buy the loans from banks, and resell them as securities on the secondary market. Nonconforming loans are also known as jumbo loans, because they are greater than the $427,000 cutoff.


To get a conventional loan, you’ll need excellent credit. You need a minimum of a 620 credit score, and even then will probably pay a fee if it isn’t at least 740. (Source: Bankrate.com Though, Credit score requirements for conventional mortgages vary by lender; however, in most cases the minimum credit score for a conventional mortgage is 620. Some lenders, however, will underwrite mortgages with credit scores as low as 580; it is simply up to each lender as to what score is the cut off. Your credit score is a major part of the equation when qualifying for a conventional mortgage. Fannie Mae requires that the borrower have a credit score of at least 620 for fixed-rate loans. If your score is lower than 620, you may find it difficult to get a conventional home loan.