Conventional Loans

Get to Know the Benefits of Conventional Home Loans

When it comes to buying a home, conventional loans are one of the most popular mortgage options available in Middle Tennessee.

Conventional loans are backed by private lenders and not insured by the federal government. They are known for their flexibility, competitive interest rates, and wide availability, among other benefits.

Whether you’re buying your first home or refinancing an existing property, understanding how conventional loans work can help you make a confident and informed decision.

What is a Conventional Loan?

Simply put, a conventional loan refers to a mortgage that is not backed or insured by any government entity such as the FHA (Federal Housing Administration), VA (Department of Veterans Affairs), or USDA (U.S. Department of Agriculture). Department of Agriculture).

These loans come from private lenders. They usually follow the loan limits and rules set by Fannie Mae and Freddie Mac.

At the core, there are two types of conventional loans:

Conforming Loans: Loans that fall within the maximum limits set by Fannie Mae and Freddie Mac.

Non-Conforming Loans: Loans that exceed these limits (also known as jumbo loans).

Common Loan Terms to Know

When exploring conventional loans, you’ll encounter a few important terms. Here’s a quick breakdown:

Down Payment: Conventional loans typically require a minimum down payment of 3% to 5%, depending on the borrower’s credit profile and the lender’s requirements.

Conventional loans can finance different types of properties, such as:Private Mortgage Insurance (PMI): Necessary when your down payment is under 20%. PMI protects the lender in case of default and can often be canceled once you reach 20% equity.

Loan Limits: In most areas, the conforming loan amount for 2025 is $766,550, but this may vary based on your location.

Fixed vs. Adjustable Rates: You can choose a fixed-rate loan, which locks in your interest rate for the life of the loan, or an adjustable-rate mortgage (ARM), which may offer a lower initial mortgag rate that adjusts over time.

Credit Score: Typically, a credit score of at least 620 is needed, though higher scores are preferred.

Who Is a Conventional Loan Best For?

A conventional loan can be a great fit for a variety of buyers, but it’s especially ideal for:

Buyers with Strong Credit

Borrowers with a credit score of 680 or higher typically qualify for the most competitive rates and terms.

Buyers with a Steady Income and Employment History

Conventional loans need full documentation. They work best for people with steady income and a strong job history.

Buyers with Savings for a Down Payment

While it’s possible to qualify with a lower down payment, putting down at least 5%–20% helps reduce costs, especially when it comes to avoiding PMI.

Buyers Looking for Flexibility

Conventional loans are applicable to numerous property types, such as:

Primary residences
Second homes
Investment properties

They also offer more options for term lengths and loan structures than most government-backed loans.

Conventional Loan FAQ

What is a conventional loan?

A conventional loan is a mortgage not backed by a government agency (such as FHA or VA). These loans follow guidelines set by Fannie Mae and Freddie Mac and are popular for buyers with good credit and stable income.

What credit score do I need for a conventional loan?

Most lenders require a minimum credit score of 620, but a higher score can help you qualify for a lower interest rate and better terms.

How much do I need for a down payment?

Conventional loans typically require 3%–20% down, depending on your credit, income, and loan structure. First-time homebuyers may qualify for down payments as low as 3%.

Do conventional loans require mortgage insurance?

Yes—if your down payment is less than 20%, you’ll need private mortgage insurance (PMI). The good news? You can request PMI removal once your home reaches 20% equity.

Can I use a conventional loan for investment properties or second homes?

Absolutely. Conventional loans can be used for primary residences, second homes, and investment properties, offering more flexibility than many government-backed loans.

What are the benefits of choosing a conventional loan?

Conventional loans often come with:

Competitive interest rates
Flexible terms
Lower costs over time (especially once PMI is removed)
More options for property types

How much can I borrow with a conventional loan?

Loan limits vary by county. Standard conforming limits apply, but high-cost areas may allow for higher loan amounts under conforming or jumbo guidelines.

Are conventional loans good for first-time homebuyers?

Yes—conventional loans can be a great fit for first-time buyers who have solid credit and want low monthly PMI or more long-term savings.

Can I refinance into a conventional loan?

Yes. Many homeowners refinance into a conventional loan to remove PMI, lower their rate, shorten their term, or switch from another loan type.

How do I know if a conventional loan is right for me?

If you have good credit, stable income, and want long-term flexibility, conventional loans are often the best choice. A loan specialist at New Haven Mortgage can help you compare loan programs and choose the perfect fit.