Conventional Loan
A conventional loan is a mortgage that is not insured or guaranteed by a federal government agency. Conventional loans are originated and funded by private lenders and may be sold to Fannie Mae or Freddie Mac on the secondary market. They typically require higher credit scores and larger down payments than government-backed alternatives.
What This Means
How Conventional Loans Work
Conventional loans follow underwriting guidelines established by Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that purchase mortgages from lenders. Borrowers generally need a minimum credit score of and a down payment of at least for fixed-rate loans, though putting down less than triggers a private mortgage insurance (PMI) requirement. PMI protects the lender if the borrower defaults and can be removed once the loan-to-value ratio reaches .
Conforming vs. Non-Conforming
Most conventional loans are "conforming," meaning they fall within the loan limits set annually by the Federal Housing Finance Agency (FHFA). For 2025, the baseline conforming loan limit is for a single-unit property in most counties, with higher limits in designated high-cost areas. Conventional loans that exceed these limits are classified as jumbo loans and carry different underwriting standards.
When Conventional Loans Are a Strong Fit
Borrowers with solid credit histories and stable income often find conventional loans offer competitive interest rates and flexible term options, including 15-year, 20-year, and 30-year fixed-rate structures as well as adjustable-rate variants. Unlike FHA loans, conventional financing does not require an upfront mortgage insurance premium, and the monthly PMI obligation ends once sufficient equity is established. This makes conventional loans particularly cost-effective over the long term for borrowers who can meet the qualification thresholds.