What You Need to Know About Getting a Conventional Home Loan in 2025

• Author: Margaret Hills
• Posted: 2024-12-09

Thinking about buying your first house? You might have heard that getting a loan for it can be tough, but that's not always the case.

Here's a breakdown of what you need to know about conventional loans—a common type of mortgage that's not backed by the government. They can actually be quite accessible!
 

Who Can Get a Conventional Loan?

Most people believe you need a perfect credit score and a big down payment to get a conventional loan. But that's not entirely true. Here’s what you actually need:
 

• Credit Score: A score of 620 or more is your ticket in.
• Down Payment: You can start with as little as 3% down.
• Stable Income: Lenders like to see that you’ve had a consistent income and have been working steadily for the past two years.
• Financial Records: Be ready to show your bank statements, tax forms, and other financial documents.

Read more: Easy Guide to Down Payment Help in the USA
 

Key Requirements for a Conventional Loan

Let’s dive into the specifics you’ll need to qualify for this type of loan:
 

• Credit Score: Aim for at least 620 to get your application considered.
• Down Payment: Thankfully, you only need to put down 3-5%, not the often-feared 20%.
• Debt-to-Income Ratio (DTI): Keep this below 43%. It’s a measure that compares how much debt you have to your income.
• Loan Limits: The amount you borrow must fit within certain limits, which can vary by your location.
• Stable Work and Income: Again, consistency is key. Lenders will check.

 

Extra Details

 

1. Private Mortgage Insurance (PMI): If your down payment is less than 20%, you'll need to pay for insurance that protects the lender in case you can't pay back the loan.
2. Loan Amount Limits: These loans have a cap, influenced by property values in your area.
3. Property Requirements: The home you’re buying should be a single-family or multi-unit home (up to four units), safe to live in, and cannot be a commercial property.

Check out: Easy Guide to Home Buying for People with Disabilities in 2024
 

Misconceptions and Comparisons

 

1. 20% Down Payment Myth: It's simply not true. As mentioned, just 3-5% can get you started.
2. Conventional vs. FHA Loans: If your credit score is on the higher side and you have a small down payment ready, a conventional loan might work better. But with a lower credit score and less upfront cash, an FHA loan could be more suitable, even though it comes with its own form of mortgage insurance that usually can't be canceled.

 

Getting Approved

The idea of qualifying for a conventional loan may seem daunting, but it’s more achievable than many first-time buyers think.

Remember, every lender may have slightly different requirements, so if you're not successful with one, try another.

Typically, the approval process can take between 30 to 45 days, so plan accordingly. And the best first step? Check your eligibility—don’t count yourself out before you start!

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