A conventional loan is any mortgage not insured or guaranteed by a government agency. It follows underwriting rules set by Fannie Mae and Freddie Mac, the two entities that buy most conventional loans from lenders afterward.
Who it's best for
Buyers with a credit score of roughly 620 or higher (many lenders use 620 as a floor, though Fannie Mae's automated underwriting no longer requires a fixed minimum; 700+ gets meaningfully better pricing), a down payment of at least 3-5%, and a debt-to-income ratio under roughly 45%. It's also the only realistic option once your loan amount exceeds the conforming loan limit for a jumbo loan, or the right fit for repeat buyers with 20%+ down who want to avoid mortgage insurance entirely.
Why people choose it over FHA or other government loans
- PMI cancels automatically. Borrower-paid private mortgage insurance must end automatically when your balance is scheduled to reach 78% of the home's original value (if you're current), and you can request removal at 80% of original value if you meet the conditions. FHA's mortgage insurance often lasts the life of the loan.
- No upfront insurance premium. FHA charges 1.75% of the loan upfront; conventional doesn't.
- More flexibility on property type. Investment properties, second homes, and condos with fewer restrictions than FHA allows.
Down payment options
Conventional loans aren't a 20%-down-only product — that's a common myth. Fannie Mae's HomeReady and Freddie Mac's Home Possible programs allow as little as 3% down for qualifying buyers, and standard conventional financing goes down to 5%. You'll pay PMI below 20% down, but it's often cheaper than FHA's MIP for borrowers with good credit.
Conforming loan limits, PMI rates, and specific program eligibility change year to year and by county. Confirm current numbers with a licensed loan officer.