Conventional Loans
A conventional mortgage loan is a type of home loan that is not insured or guaranteed by a government program, such as those offered by the Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA), or U.S. Department of Agriculture (USDA). Instead, these loans are provided by private lenders, such as banks, credit unions, or mortgage companies, and are the most common type of mortgage in the U.S.
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: These meet the guidelines set by Fannie Mae and Freddie Mac, including loan limits (e.g., $806,500 for most U.S. counties in 2025) and credit requirements.
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: These do not meet conforming standards and include jumbo loans for amounts exceeding conforming limits.
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Fixed-rate loans: Interest rates remain constant throughout the loan term.
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Adjustable-rate mortgages (ARMs): Interest rates can fluctuate over time.
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Can be as low as 3% for some fixed-rate loans but typically requires private mortgage insurance (PMI) if the down payment is less than 20%.
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A minimum credit score of 620 is generally required, which is stricter compared to government-backed loans.
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Common terms include 15-year and 30-year options.
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Potentially lower overall costs compared to government-backed loans.
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Greater flexibility in loan size and terms for qualified borrowers.
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Stricter qualification criteria, including higher credit score and debt-to-income ratio requirements.
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PMI costs for down payments under 20%.
Conventional loans are ideal for borrowers with strong credit profiles who can meet the stricter requirements and want competitive interest rates without relying on government assistance.
- Down Payment Requirements: Conventional loans typically require a down payment ranging from 3% to 20% of the home’s purchase price. The specific amount depends on factors such as your creditworthiness, the lender’s policies, and the loan program you choose.
- Credit Score: A solid credit history is essential for conventional loan approval. Lenders generally look for a credit score of 620 or higher, but a higher score can lead to better interest rates and terms.
- Private Mortgage Insurance (PMI): If your down payment is less than 20% of the home’s purchase price, you’ll likely need to pay for private mortgage insurance. PMI protects the lender in case of default. Once your loan-to-value ratio improves (usually when you have 20% equity), you can request to remove PMI.
- Loan Limits: Conventional loans have maximum loan limits set by the Federal Housing Finance Agency (FHFA). These limits vary by location and are subject to change annually. Borrowers seeking loans above these limits may consider jumbo loans.
- Interest Rates: Conventional loan interest rates can vary based on market conditions, your credit score, and the lender’s pricing. Shopping around for the best rate is advisable to secure the most favourable terms.
- Fixed and Adjustable-Rate Options: Conventional loans offer both fixed-rate and adjustable-rate mortgage (ARM) options. Fixed-rate loans maintain a stable interest rate throughout the loan term, while ARMs typically start with a fixed period before adjusting based on market rates.
- Flexibility in Property Types: Conventional loans can finance various property types, including single-family homes, condominiums, townhouses, and even multi-unit properties (up to four units).
- Streamlined Refinancing: Conventional loans also support refinancing options, including rate-and-term refinancing to lower interest rates or cash-out refinancing to access home equity.
- Competitive Terms: Borrowers with solid credit profiles often enjoy competitive terms, including lower interest rates and fewer fees.
Conventional loans provide borrowers with flexibility, affordability, and a wide range of options to suit their homeownership goals. Before choosing a conventional loan, it’s essential to assess your financial situation, shop for competitive rates, and consider the down payment and credit score requirements. Consulting with a mortgage expert can help you navigate the conventional loan process and make informed decisions about financing your home.
