What Is Conventional Loan?
Conventional Loan: A mortgage not insured by the government, usually following Fannie Mae or Freddie Mac rules.
A conventional loan is any mortgage that isn't insured or guaranteed by a government agency like FHA, VA or USDA. Most conventional loans are "conforming": they meet Fannie Mae and Freddie Mac guidelines and fit under the conforming loan limit.
Key features
- Down payment: from 3% for first-time buyers (5% otherwise)
- Credit: usually 620 minimum, with better pricing at higher scores
- Mortgage insurance: PMI with less than 20% down, removable later
- Property types: primary homes, second homes and investment properties, one to four units
- DTI: up to about 45%, sometimes 50%
Who it fits best
Borrowers with good credit (roughly 680+), and anyone putting 20% or more down. Because PMI can be removed and pricing rewards credit, conventional loans are often the lowest-cost choice for strong borrowers.
Compared with FHA
FHA loans are easier to qualify for with lower scores, but their mortgage insurance usually lasts the life of the loan. With a score above about 700, conventional is often cheaper.