Conventional Loans

A conventional mortgage loan is a “conforming” loan, which simply means that it meets the requirements for Fannie Mae or Freddie Mac. Fannie Mae and Freddie Mac are government-sponsored enterprises that purchase mortgages from lenders and sell them to investors. This frees up lenders’ funds so they can get more qualified buyers into homes.

Conventional Mortgages vs Government Loans

Government-backed loans are insured by federal agencies. This insurance protects the lender if the borrower fails to repay the loan and is meant to encourage lenders to offer mortgages to a wider range of home buyers. Conventional mortgages are offered by many lenders that also offer government-backed loans. Lenders generally view conventional loans as riskier because they’re not guaranteed by the government, so conventional mortgages tend to have tougher requirements.

Mortgages backed by government agencies offer different qualifications that can make them more attractive to some home buyers.    

Loans guaranteed by the Federal Housing Administration, or FHA loans, aim to make buying homes more affordable for low- to middle-income borrowers, with relaxed lending standards, down payments as low as 3.5% and competitive interest rates.    

VA loans are guaranteed by the U.S Department of Veterans Affairs and are available only to active service members and veterans.VA loans can have down payments as low as 0%.    

USDA loans, backed by the U.S. Department of Agriculture, are geared toward properties in areas designated as rural. The USDA also makes direct loans to some low-income borrowers.

Conventional loans aren't limited to borrowers based on income, location or military status. Anyone who is able to meet a lender's standards is eligible for a conventional mortgage.

What you'll need:

  • Down Payment: It’s possible for first-time home buyers to get a conventional mortgage with a down payment as low as 3%. However, the down payment requirement can vary based on your personal situation and the type of loan or property you’re getting.

  • Good Credit Scores: You'll generally need a credit score of at least 620 to qualify for a conventional loan, though a score that's above 740 will help you get the best rate.

  • Good Debt-To-Income ratio:  Your debt-to-income ratio (DTI) is a percentage that represents how much of your monthly income goes to pay off debts. You can calculate your DTI by adding up the minimum monthly payments on all your debts (like student loans, auto loans and credit cards) and dividing it by your gross monthly income. For most conventional loans, your DTI must be 50% or lower.

  • Loan Size: For a conforming conventional loan, your loan must fall within the loan limits set by Fannie Mae and Freddie Mac. The loan limit changes annually. For 2022, the conforming loan limit for a single-family home is $647,200.


  • More property types: In addition to jumbo loans for pricier homes, conventional loans can be used for a second home or an investment property.

  • Control over Mortgage Insurace: If your down payment on a conventional loan is less than 20%, you'll have to get private mortgage insurance. After your principal loan balance drops to 78% of the home’s value, however, you can ask to cancel your PMI. In contrast, mortgage insurance premiums on FHA loans can last for the life of the loan.

  • No Program Specific Fees: Though you'll likely still pay fees to the lender, conventional loans don't have the additional program-specific costs of government-backed loans. For example, with an FHA loan you'll pay a 1.75% upfront mortgage insurance premium; VA loans have a funding fee of 1.4 to 2.3%, depending on your down payment.

  • More choices in loan structure: Though 30-year fixed-rate conventional mortgages are the most common, you can find other terms (like 15- or 20-year loans) as well as adjustable-rate mortgages. Since lenders don't have to stick to government-prescribed programs, they can create more options.


  • Stricter Requirements: Conventional Mortgages have much stricter requirements than private loans. Higher Credit Score thresholds, lower Debt-To-Income Ratios needed, and you must have no past bankruptcies. Overall it's much harder to qualify for conventional loans than private ones.

What Are Rates for a Conventional Mortgage?

Interest rates for conventional mortgages change daily. Conventional mortgage interest rates are usually slightly lower than FHA loan interest rates and slightly higher than VA loan interest rates.

However, the actual interest rate you get will be based on your personal situation.While many sites can give you estimated conventional loan interest rates, the best way to see your actual interest rate for a mortgage is to apply. When you apply for Pre-Approval with Water Mortgage, you’ll be able to see your real interest rate and payment without any commitment.

Fixed Rates or Adjustable Rates?

Your Conventional Mortgage can have two kinds of Rates: Fixed Rates, and Adjustable Rates (ARMs).

While the marketplace offers numerous varieties within these two categories, the first step when shopping for a mortgage is determining which of the two main loan types best suits your needs.




Set rate of interest that does not change throughout the life of the loan.

Rate set below the market rate on a comparable fixed-rate loan that rises (or possibly lowers) over time


Typically makes it easier for homeowners for homeowners to budget.

Typically more complicated than a fixed-rate mortgage


Provides protection from sudden changes in mortgage rates.

Tipically much cheaper than a fixed-rate mortgage at least in the first 3-7 years.


Difficult to qualify if interest rates are high.

Monthly payment can change frequently, sometimes towards much more expensive rates.

Can a Loan Officer Pre-Approve this Loan?

Like with all other Mortgages and loans, a Loan Officer can help you get Pre-Approved for a loan so the lending process can happen smoothly. Water Mortgage is here to help with all your Pre-Approval needs!

Get Pre-Approved for a Conventional Loan Today!