What is a Conventional Loan?

A Conventional loan is the most common type of loan. It is a mortgage that is not guaranteed or insured by any government agency, such as the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the Department of Agriculture (USDA). It is typically fixed in its terms and rate.

Key Features of Conventional Loans

  • Flexibility in Terms: Conventional loans offer a variety of terms, typically ranging from 10 to 30 years, allowing you to choose a term that best fits your financial situation.

  • Variety in Loan Types: Choose from a range of options, including fixed-rate mortgages, where the interest rate remains the same for the life of the loan, or adjustable-rate mortgages (ARMs), where the rate may change periodically.

  • Loan Size Options: Conventional loans come in all sizes, with varying limits set by the Federal Housing Finance Agency (FHFA).

Benefits of a Conventional Loan

  • Lower Interest Rates: For borrowers with good credit, conventional loans often offer lower interest rates.

  • No Private Mortgage Insurance (PMI) with 20% Down: If you can make a 20% down payment, you can avoid paying private mortgage insurance, a cost that typically accompanies loans with less than 20% down.

  • Flexibility for Property Types: Conventional loans can be used for a primary home, a second home, or an investment property.

  • Higher Loan Limits: Compared to government-backed loans, conventional loans have higher loan limits, making them ideal for purchasing higher-priced properties.


  • Credit Score: Generally, a credit score of 620 or higher is required, but a higher score can lead to better interest rates.

  • Down Payment: Down payments can be as low as 3% for certain borrowers, but a 20% down payment eliminates the need for PMI.

  • Debt-to-Income Ratio (DTI): Lenders typically look for a DTI ratio of 43% or lower.

  • Proof of Income and Assets: You’ll need to provide documentation such as W-2 statements, pay stubs, and bank statements.

Is a Conventional Loan Right for You?

Conventional loans are ideal for borrowers with strong credit. They offer flexibility and competitive rates, making them a popular choice for many homebuyers.