What is a Conventional Loan?

Written by Bennett Leckrone

Conventional home loans are the most popular mortgages on the market since they balance flexibility, speed, and cost for borrowers.

A conventional loan is a mortgage not backed by a government program, like FHA, VA, or USDA. Instead, conventional loans are made by a private lender and underwritten to that lender’s rules and, most often, to standards set by Fannie Mae and Freddie Mac.

Read on to learn more about what that means, and whether a conventional loan might be right for you.

How Conventional Loans Work

At its core, a conventional mortgage is financing from a private lender without federal insurance or guarantees.

That structure can yield competitive pricing for stronger credit borrowers and broader flexibility on property types and loan features.

Most conventional loans are conforming, which means they meet guidelines set by Fannie Mae and Freddie Mac. Nonconforming loans sit outside those standards.

Conventional loans have no federal guarantee. By comparison, FHA, VA and USDA loans are insured or guaranteed by the government, which reduces risk for lenders and generally means more flexible requirements for borrowers.

Conventional loans favor higher credit and documented income strength, while FHA, VA, and USDA loans can open doors for lower scores or low/no down payment needs.

Feature	Conventional	Government-backed (FHA/VA/USDA)
Backing	None (private lender guidelines)	Federal insurance/guarantee
Typical credit minimum	Typically 620 for conforming loans	Can allow lower minimums (varies by program)
Minimum down payment	As low as 3% (borrower dependent)	FHA 3.5%, although VA and USDA may allow 0%
Mortgage insurance	PMI if less than 20% down; cancellable with equity	FHA MIP often required, VA funding fee, USDA guarantee fee
Assumability	Typically not assumable	Many are assumable
Property types	Primary, second home, investment	Primarily primary residences (VA allows some flexibility)

Conforming vs. Non-Conforming Conventional Loans

Conventional loans fall into two main buckets, and the difference matters for pricing, loan size, and underwriting:

Conforming loans: These meet Fannie Mae/Freddie Mac guidelines, including loan limits set by the FHFA. That’s currently $806,500 in most areas, with higher limits in designated high-cost markets.
Nonconforming loans: These exceed loan limits or don’t fit conforming rules. Jumbo loans are the most common example and often carry stricter requirements and slightly higher rates.

Conventional loans can finance primary residences, second homes, and investment properties. That flexibility is a key draw for many buyers.

Types of Conventional Loans

Because they’re such a broad category, conventional loans come in a wide range of formats.

Fixed-rate mortgages are the most common type of conventional loan, with common terms of 15 to 30 years. These loans have a fixed interest rate, which keeps principal and interest payments the same throughout the loan term.

Adjustable rate mortgages are another type of conventional loan. They typically have an introductory fixed-rate period followed by periodic adjustments based on both a benchmark index and a lender-set margin.

Jumbo mortgages are one of the most common types of non-conforming loans, since they exceed FHFA conforming loan limits.

Category	Conforming Conventional	Nonconforming Conventional
Backing	None, but Fannie/Freddie eligible	None, and not ot Fannie/Freddie eligible
Loan limit	Up to FHFA limit (e.g., $806,500 in most areas)	Above FHFA limits or outside guidelines
Credit profile	620+ typical minimum, but better pricing with higher scores	Higher scores and reserves often required
Rates/fees	Competitive for strong-credit borrowers	Can be slightly higher
Property types	Primary, second home, investment	Primary, second home, investment

Conventional Home Loan Credit Score, DTI, and Down Payment Requirements

Understanding conventional loan requirements helps you gauge your readiness before you apply.

Most conforming loans require at least a 620 credit score, although borrowers above 700 often get the best pricing. Your debt-to-income (DTI) ratio also matters: Many lenders look for DTIs at or below 43% to 45%.

You’ll be required to make a down payment on conventional loans. Options start at 3% for eligible borrowers, though 5% is the typical minimum.

If you put less than 20% down, you’ll be required to have private mortgage insurance (PMI). PMI is added when your down payment is under 20%.

Documents You’ll Need to Get a Conventional Home Loan

You’ll need to prove your income to get a conventional loan. Some common documents you’ll need include:

Recent pay stubs and W-2s
Tax returns (usually two years)
Bank and asset statements
Employment verification and ID

Conventional Loan Pros and Cons

Conventional loan pros

A conventional loan is a fast and flexible way to pay for your home, especially if you have strong credit or DTI.

Faster approvals and less paperwork than many government programs, helping you move from offer to close sooner.
Flexible property eligibility: finance a primary home, second home, or investment property.
Competitive rates and broad term options (e.g., 15- and 30-year), especially for well-qualified borrowers.
PMI can be removed once you reach 20% equity, which can lower your total monthly cost over time.

Conventional loan cons

Conventional mortgages aren’t perfect for everyone. They’ve got tighter credit score and DTI requirements compared to government-backed loans.

Higher credit and documentation standards than government-backed loans can be tougher for thin-file or lower-score borrowers (see Experian’s conventional loan explainer).
PMI if you put less than 20% down, adding to monthly costs (see Business Insider’s conventional mortgage primer).
Most conventional loans aren’t assumable, so a future buyer typically can’t take over your rate and terms (see Tomo’s conventional loans guide).
Stricter DTI rules and tighter pricing for lower scores may limit affordability.

Summary perspective: Government-backed options can open doors with lower scores or smaller down payments; conventional loans reward stronger-credit profiles with flexibility and long-term cost control, especially when PMI can be removed.

The Bottom Line

A conventional loan is any mortgage not backed by a government program. They offer simplicity and flexibility, particularly for buyers with a strong credit score and a solid DTI.

Frequently asked questions about Conventional Loans

What is a conventional loan?

A conventional loan is a home mortgage offered by private lenders and not insured or guaranteed by the federal government.

What are the credit score requirements for a conventional loan?

Most conventional loans require a minimum credit score of 620, with higher scores unlocking better rates.

How much do I need for a down payment on a conventional loan?

Down payments can start at 3% for eligible borrowers, but 20% down lets you avoid private mortgage insurance.

What’s the difference between a conventional and FHA loan?

Conventional loans have stricter credit and down payment standards but offer more flexibility and allow for the removal of mortgage insurance at 20% equity.

Can I use a conventional loan for a second home or investment property?

Yes. Conventional loans can finance primary residences, second homes, and investment properties.

Do all conventional loans require private mortgage insurance (PMI)?

PMI is required if your down payment is less than 20%, but you can cancel it as you build equity.

Are conventional loans assumable?

Most conventional loans are not assumable; a buyer typically needs new financing if you sell.

How fast can I get approved for a conventional loan?

Timelines vary, but conventional loans often close in around 30 days, sometimes faster.

What documents will I need to apply for a conventional loan?

Plan to provide pay stubs, tax returns, bank statements, and details on assets and debts.

Is a conventional loan right for first-time homebuyers?

Yes, if you meet credit and income guidelines; some programs allow down payments as low as 3%.

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