What Is a Conventional Loan?

A conventional loan is a mortgage that is not backed by a government agency such as the FHA, VA, or USDA. It follows the underwriting guidelines set by private lenders and the standards of the government‑sponsored enterprises Fannie Mae and Freddie Mac.

How Credit Scores Influence Conventional Loans

Lenders use credit scores to gauge the risk of lending. A score of 620 or higher generally meets the baseline for most conventional loan programs. The higher the score, the more options you have for lower interest rates and reduced documentation requirements. Scores below 660 are often considered sub‑prime, so lenders may increase the rate, require a larger down payment, or ask for additional proof of income to offset the perceived risk.

Down‑Payment Options

  • 3%–5% down is possible with private mortgage insurance (PMI) when credit is adequate.
  • 5%–10% down may be required for borrowers with lower credit scores to keep the loan within acceptable risk parameters.
  • 20% down eliminates PMI and can result in more favorable loan terms.

Private Mortgage Insurance (PMI)

PMI protects the lender if the borrower defaults and is required when the down payment is less than 20% of the home’s purchase price. The cost is usually expressed as a percentage of the loan amount and is added to the monthly payment. Once you reach 20% equity, you can request cancellation of PMI, which reduces your monthly outlay.

Other Qualification Factors

  • Debt‑to‑income (DTI) ratio: most lenders cap DTI at 43%, though some may stretch to 50% with compensating factors like high cash reserves.
  • Employment history: a stable job history of at least two years is commonly expected.
  • Cash reserves: having two to three months of mortgage payments saved can strengthen an application, especially with lower credit.

Oregon‑Specific Considerations

In Oregon, many home purchases close with an attorney rather than a title‑company, which can affect closing timelines and fees. The state also offers first‑time‑homebuyer assistance programs through Oregon Housing and Community Services that provide down‑payment grants or low‑interest loans, and these programs often consider credit improvement plans when evaluating eligibility.

This article provides general information and should not be taken as personalized financial advice. Always consult a qualified mortgage professional to discuss your specific situation.