What is a conventional loan?

A conventional loan is a mortgage not backed by a government agency — no FHA, VA, or USDA guarantee. Most conventional loans follow Fannie Mae or Freddie Mac guidelines, require at least 3–5% down, and allow PMI cancellation once you reach 20% equity.

A conventional loan is simply a mortgage that isn't insured or guaranteed by the federal government. That distinguishes it from FHA loans (HUD/FHA-backed), VA loans (Department of Veterans Affairs), and USDA loans (Rural Development). Most conventional loans are conforming — meaning they meet the underwriting standards set by Fannie Mae and Freddie Mac and fall within annual loan limits set by the Federal Housing Finance Agency (FHFA). Loans above those limits are jumbo loans.

Down payment and PMI

Conventional loans are available with down payments as low as 3% (through programs like Fannie Mae's HomeReady or Freddie Mac's Home Possible), though 5–20% is more common. If you put down less than 20%, you'll typically pay private mortgage insurance (PMI), which protects the lender if you default. Unlike FHA MIP, conventional PMI is cancellable once your equity reaches 20% of the home's original value — and federal law (the Homeowners Protection Act) requires automatic cancellation at 22% equity.

Typical qualification requirements

Credit score: Most conforming conventional loans require 620 minimum; better rates generally appear at 740+.
Debt-to-income ratio: Typically up to 45%, occasionally 50% with compensating factors.
Down payment: As low as 3%, but less than 20% triggers PMI.
Loan limits: Conforming limits are set annually by the FHFA and are higher in designated high-cost areas.

Conventional vs. FHA: when each makes sense

Conventional loans generally cost less over time for borrowers with solid credit (720+) and 20%+ down, because they avoid MIP entirely. FHA may be a better fit if your credit score is below 620 or your down payment is limited. The CFPB's loan options guide lets you compare both side by side. Run the numbers on total cost — not just the monthly payment — for the loan term you expect to hold.

Fixed vs. adjustable on conventional loans

Conventional loans can be fixed-rate (rate stays the same for the life of the loan) or adjustable-rate (starts fixed, then adjusts periodically). The most common conventional product is the 30-year fixed, followed by the 15-year fixed and various ARM structures (5/1, 7/1, 10/1).

Program facts

Conventional loans are not insured or guaranteed by a federal agency, unlike FHA, VA, or USDA loans. — CFPB
Federal law (Homeowners Protection Act) requires automatic PMI cancellation on conventional loans when the borrower reaches 22% equity based on the original value and amortization schedule. — CFPB
The conforming loan limit is set annually by the FHFA and is higher in designated high-cost areas. — FHFA

Key takeaways

Conventional = no government guarantee; most follow Fannie Mae / Freddie Mac guidelines.
Down payments from 3%, but less than 20% means PMI — which you can cancel at 20% equity.
Minimum 620 credit score for most conforming loans; better rates start at 740+.
Above conforming loan limits, you're in jumbo territory with stricter requirements.
Compare total cost vs. FHA over your expected hold period — don't decide on monthly payment alone.