Conventional Loan

A conventional loan is simply a mortgage that doesn't have government backing. It's not an FHA, VA, or USDA loan. It follows guidelines set by Fannie Mae and Freddie Mac (government-sponsored enterprises that purchase and guarantee mortgages).

Conventional loans are the most common mortgage type. They typically require a credit score of at least 620, and down payments can be as low as 3% for qualified buyers, though putting down less than 20% usually triggers PMI (private mortgage insurance).

With a stronger credit profile and a larger down payment, conventional loans often offer competitive interest rates.

Understanding conventional loans helps you compare mortgage options. If you have good credit and a reasonable down payment, a conventional loan is often your best option, potentially with lower total costs than government-backed alternatives. But every situation is different, which is why comparing loan types with a lender is important early in the homebuying process.

A buyer with a 720 credit score and 10% down purchases a $300,000 home with a conventional loan. Because they're putting down less than 20%, they'll pay PMI until they reach 20% equity. The loan follows standard Fannie Mae guidelines.

"Conventional loans require 20% down."

This is one of the most persistent myths in real estate. Conventional loans can be obtained with as little as 3–5% down; you'll just pay PMI if your down payment is less than 20%. That PMI can eventually be removed once you've built sufficient equity.