Conventional mortgages are among the most common loan options for homebuyers and homeowners looking to refinance under better terms. These loans can come with a fixed or variable interest rate and are usually offered in 15- or 30-year terms. Unlike FHA or VA loans, conventional loans are not backed by a government agency. Instead, they’re provided by private lenders such as banks and mortgage companies, and the guidelines are set by Fannie Mae and Freddie Mac.

 

A key feature of conventional mortgages is the down payment requirement. Traditionally, a 20% down payment is needed to qualify and avoid private mortgage insurance (PMI). However, both Fannie Mae and Freddie Mac offer programs that allow borrowers to put down as little as 3%, making conventional loans more accessible to first-time buyers.

 

To qualify for a conventional mortgage, borrowers generally need:

➡️ A credit score of at least 620.
➡️ Two years of steady employment.
➡️ A debt-to-income ratio of 45% or lower (with some exceptions possible).
➡️ An escrow account if the down payment is less than 20%, to cover property taxes and homeowners insurance.

 

Conventional mortgages are versatile and can be used to purchase nearly any type of residential property, whether it’s a primary residence, second or vacation home, multi-family property, or even an investment property. For many buyers, they remain the go-to option for balancing flexibility, competitive rates, and long-term savings.

In the past, many buyers were discouraged from purchasing a home because of large down payment requirements, strict credit score rules, and rigid property guidelines. To expand access to homeownership, Government-Sponsored Enterprises (GSEs) like Fannie Mae and Freddie Mac created affordable loan programs with reduced barriers. These GSEs not only provide funding to lenders and guarantee third-party loans, but they also purchase loans on the secondary market—helping lenders expand the number of loan programs available to borrowers.

 

 

Two of the most popular programs are Fannie Mae’s HomeReady Loan and Freddie Mac’s Home Possible Loan. Both allow qualified buyers to finance a home with a down payment as low as 3%, making them excellent options for moderate-income borrowers. With credit score requirements starting at just 620, these programs provide flexibility and affordability for first-time buyers and repeat homeowners alike.

 

 

If you’re considering buying a home but are concerned about your down payment, our team can review your financial profile to see if a HomeReady or Home Possible loan is right for you. We’ll help you take the next step toward homeownership with confidence.