Conventional loans are secured by government sponsored entities or GSEs such as Fannie Mae and Freddie Mac. A conventional mortgage is not insured or guaranteed by the federal government itself. Conventional loans can be made to purchase or refinance homes with first and second mortgages on single-family and up to four family homes. In general, the Fannie Mae and Freddie Mac’s single family, first mortgage loan limit as of 2021 is $548,250 (amounts vary by county and are $776,250 for King, Pierce and Snohomish). This limit is reviewed annually and, if needed, adjusted to reflect changes in the national average price for single- family homes. Borrowers with a conventional loan will typically pay a higher down payments and have excellent credit in return for better terms. If you can meet the stricter requirements and qualify for a conventional loan, this is likely the type of loan you will seek.
Conventional Loan Benefits & Eligibility Requirements
- Minimum credit score of 620 typically
- A max debt-to-income (DTI) ratio of 45 to 50%
- A minimum 5% down payment
- PMI is not required so long as you meet a 20% down payment
- Can be used for wide range of property types
- Higher loan limits than some government-backed programs
- Flexible loan terms (adjustable and fixed-rate options)
Conventional Loans FAQs
What is PMI? Why is it needed?
PMI stands for private mortgage insurance. It protects the lender in case of default on your home loan.
Do I have to make a 20% down payment?
A 20% down payment is not required to qualify for a conventional loan. However, a 20% down payment will allow you to take advantage of a conventional loan’s lower interest rates without the PMI requirement.
What is a non-conforming conventional loan?
A non-conforming conventional loan (or “jumbo” loan) is a loan that exceeds the conforming loan limit established for that year ($776,250 for King, Pierce and Snohomish counties as of 2021). Non-conforming loans are funded by private lenders instead of Fannie Mae or Freddie Mac. Take a look at our jumbo loans page to learn about more options.
Fairway is not affiliated with any government agencies. These materials are not from HUD or FHA and were not approved by HUD or a government agency.