Conventional
Home Loans
The most popular mortgage option in America. Flexible terms, competitive rates, and down payments as low as 3% for qualified borrowers.
Last updated: March 2026
What Is a
Conventional Loan?
A conventional loan is a mortgage that is not insured or guaranteed by any government agency such as the FHA, VA, or USDA. These loans are originated and serviced by private lenders — banks, credit unions, and mortgage companies — and follow guidelines set by Fannie Mae and Freddie Mac. Conventional loans account for roughly 80% of all home purchase mortgages in the United States, making them the most widely used financing option for homebuyers.
Fixed-Rate Mortgages
Lock in a single interest rate for the entire life of your loan. Your monthly principal and interest payment never changes, providing predictable budgeting for 15, 20, or 30 years.
- Stable monthly payments
- 15, 20, or 30-year terms
- Protection from rate increases
- Ideal for long-term homeowners
Adjustable-Rate (ARM)
Start with a lower introductory rate that adjusts periodically after an initial fixed period. Common structures include 5/1, 7/1, and 10/1 ARMs — the first number is years at the fixed rate.
- Lower initial interest rate
- 5/1, 7/1, or 10/1 structures
- Rate caps limit adjustments
- Great if you plan to move or refinance
Conforming Loans
Conventional loans that meet Fannie Mae and Freddie Mac guidelines, including the conforming loan limit of $766,550 in 2025 (up to $1,149,825 in high-cost areas like parts of California).
- $766,550 standard limit (2025)
- Higher limits in high-cost areas
- Best available interest rates
- Easier qualification standards
Flexible Down
Payment Choices
One of the biggest myths about conventional loans is that you need 20% down. In reality, qualified borrowers can put down as little as 3%. Here is how different down payment levels affect your loan.
3% Down Payment
Available through Fannie Mae's HomeReady and Freddie Mac's Home Possible programs. Ideal for first-time buyers. PMI required until you reach 20% equity.
5% Down Payment
A popular middle-ground option. Lower PMI premiums compared to 3% down, and you build equity faster from the start.
10% Down Payment
Significantly reduced PMI costs. Many lenders offer better interest rates at 10% down, and you start with meaningful home equity from day one.
20% Down Payment
The gold standard. No PMI required, the lowest possible interest rates, and instant 20% equity in your home. Strongest offer in competitive markets.
Understanding
PMI
Private Mortgage Insurance protects the lender if you default on your loan. It is required when your down payment is less than 20%, but it is not permanent. Here is what you need to know.
What PMI Costs
PMI typically ranges from 0.3% to 1.5% of the original loan amount per year. On a $400,000 loan, that is roughly $100 to $500 per month, depending on your credit score and down payment amount. Higher credit scores earn lower PMI rates.
Automatic Removal at 78% LTV
Under the Homeowners Protection Act, your lender must automatically cancel PMI when your loan balance reaches 78% of the original home value. This happens through normal amortization without any action required from you.
Request Removal at 80% LTV
You can request PMI cancellation once your loan-to-value ratio hits 80%. If your home has appreciated in value, you may be able to request removal even sooner with a new appraisal proving at least 20% equity.
PMI vs. FHA MIP
Unlike FHA mortgage insurance, which lasts the life of the loan for most borrowers, conventional PMI can be removed. This is a major long-term cost advantage of conventional loans over FHA financing.
Credit Score
Guidelines
Your credit score is one of the most important factors in determining your conventional loan eligibility and interest rate. While the minimum score is 620, higher scores unlock significantly better terms and lower costs.
A borrower with a 740+ credit score could save tens of thousands of dollars over the life of a 30-year mortgage compared to someone at the 620 minimum. Every 20-point increase in your score can meaningfully improve your rate.
Pros & Cons of
Conventional Loans
Understanding the advantages and trade-offs of conventional financing helps you determine if this is the right loan type for your situation.
Advantages
Conventional loans offer several compelling benefits that make them the most popular mortgage product in the country.
- PMI can be removed (unlike FHA MIP)
- Down payments as low as 3%
- No upfront mortgage insurance fee
- Flexible terms: 10, 15, 20, 25, or 30 years
- Can be used for primary, second, or investment homes
- Higher loan limits than FHA
- Competitive interest rates for good credit
Considerations
Conventional loans are not the best fit for every borrower. Consider these factors when making your decision.
- Higher credit score requirements (620 min.)
- Stricter debt-to-income ratios (usually 45% max)
- PMI required below 20% down
- May have higher rates than VA or USDA
- More documentation required
- Appraisal standards are firm
Who Should Choose Conventional?
Conventional loans are ideal for borrowers who have solid credit, stable income, and want the most flexibility in their mortgage terms.
- Credit score of 620 or higher
- Stable employment history (2+ years)
- Can afford at least 3% down
- Want to avoid permanent mortgage insurance
- Buying a second home or investment property
- Purchasing above FHA loan limits
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Conventional Loans?
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