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What Is a Conventional Loan?
A conventional loan is any mortgage that isn’t backed by a government agency like the FHA, VA, or USDA. Conventional loans conform to guidelines set by Fannie Mae and Freddie Mac (conforming loans) or are originated outside those standards (non-conforming, including jumbo loans).
Because the lender takes on more risk without government backing, conventional loans typically require stronger credit and income profiles than FHA loans, but they can offer advantages like lower total mortgage insurance costs and more property flexibility.
Who Conventional Loans May Fit
Conventional loans may be worth comparing if you:
- Have a credit score of 620 or higher (740+ for the most competitive terms)
- Have stable, documentable income
- Have 3% to 20% or more available for a down payment
- Are purchasing a second home or investment property (FHA and VA don’t allow this)
- Want to cancel PMI once you reach 20% equity
Down Payment Options
Conventional loans offer a range of down payment options:
- 3% down: Available through programs like Fannie Mae HomeReady and Freddie Mac Home Possible for eligible borrowers with income at or below area median income limits
- 5% to 19.99% down: PMI required; higher down payment typically reduces PMI cost
- 20% or more: No PMI required
Private Mortgage Insurance (PMI)
Unlike FHA’s MIP, conventional PMI is cancellable. Once the principal balance of your mortgage is scheduled to reach 80% of the original home value (20% equity), you may request PMI removal in writing, subject to lender requirements and payment history. PMI automatically terminates when your balance reaches 78% of the original value based on the amortization schedule, or at the midpoint of the loan term - whichever comes first. Note that PMI protects the lender, not the borrower, if payments stop.
Loan Limits
Conforming conventional loans must stay within loan limits set by the Federal Housing Finance Agency (FHFA). For 2026, the standard conforming limit is $832,750 in most counties, up from $806,500 in 2025. The high-cost area ceiling is $1,249,125. Loans above the conforming limit require jumbo financing with different qualification standards.
Benefits
- No upfront mortgage insurance (unlike FHA)
- PMI is cancellable once you reach 20% equity
- Available for primary residences, second homes, and investment properties
- Fewer property condition restrictions than FHA or VA
- Competitive rates for borrowers with strong credit
Limitations
- Higher credit score requirements than FHA
- Less flexibility for borrowers with recent credit events
- PMI required with less than 20% down
- Loan amounts capped at conforming limits (above requires jumbo financing)