Conventional Loan
A conventional loan is any mortgage not insured or guaranteed by a federal government agency. Unlike FHA, VA, or USDA loans, conventional loans are backed solely by the lender and private market. They typically require a minimum 3–5% down payment and a credit score of at least 620, and they offer the broadest range of property types and loan purposes.
Conventional loans are the most common type of mortgage in the U.S., widely available through any direct lender—banks, credit unions, and mortgage companies. They divide into conforming loans (within Fannie/Freddie limits) and non-conforming loans (above those limits, known as jumbo loans). Most conventional loans require private mortgage insurance (PMI) if the down payment is below 20%, which adds 0.5–1.5% of the loan amount annually to your payments.
A key advantage of conventional loans over FHA loans is that PMI is cancellable once you reach 20% equity — FHA mortgage insurance premiums (MIP) typically remain for the life of the loan if you put less than 10% down. For buyers with strong credit (740+) and 20% down, conventional loans almost always offer better terms than government-backed alternatives.
Conventional loan programs include the standard 30- and 15-year fixed-rate products, ARMs, and special programs like Fannie Mae's HomeReady and Freddie Mac's Home Possible, which allow 3% down payments with income limits and homebuyer education requirements.
Key Takeaway
A conventional loan is any mortgage not insured or guaranteed by a federal government agency. Unlike FHA, VA, or USDA loans, conventional loans are backed solely by the lender and private market. They typically require a minimum 3–5% down payment and a credit score of at least 620, and they offer the broadest range of property types and loan purposes.
Related Terms
Frequently Asked Questions
Most lenders require a minimum 620 credit score, but the best rates go to borrowers with 740 or higher.
Yes, if your down payment is less than 20%. PMI can be cancelled once you reach 20% equity, unlike FHA mortgage insurance which often lasts for the life of the loan.
It depends on your situation. Conventional loans often cost less for borrowers with good credit (680+) and 20% down. FHA loans may be better for lower credit scores or smaller down payments.
Compare Mortgage Rates Today
Now that you know what conventional loan means, see how it affects your bottom line.
See Rates →