Back to Glossary
Conventional Loan
A conventional loan is a mortgage that is not insured or guaranteed by the federal government. Conventional loans typically require a minimum 620 credit score and offer PMI cancellation at 80% LTV.
How It Works
Conventional loans are the most common type of mortgage, making up about 80% of all home loans. They're not backed by any government agency (unlike FHA, VA, or USDA loans) and are instead backed by private lenders and sold to Fannie Mae or Freddie Mac. Conventional loans come in two categories: conforming (within Fannie/Freddie loan limits) and non-conforming (jumbo loans above those limits). The key advantage over FHA is that PMI can be cancelled once you reach 80% LTV, while FHA MIP lasts for the life of the loan. Conventional loans require a minimum 620 credit score, though the best rates go to borrowers with 740+. Down payments start at 3% for some programs (Fannie Mae HomeReady, Freddie Mac Home Possible) but 5-20% is more common.
Key Facts
Not government-backed — insured by private companies
Minimum credit score: 620 (740+ for best rates)
Down payment: 3% minimum (some programs), 5-20% typical
PMI required below 80% LTV, cancellable at 80%
Conforming loan limit: $766,550 (2024); higher in high-cost areas
Can be used for primary, secondary, and investment properties
No upfront mortgage insurance premium (unlike FHA)
Example
Home: $400,000. 10% down ($40,000). Loan: $360,000. PMI at 0.5%: $150/month. At 80% LTV ($320,000 balance), PMI is cancelled — saving $150/month for the remaining loan term.
Try the Calculator
Frequently Asked Questions
For borrowers with 700+ credit and at least 5% down, conventional is usually better long-term because PMI can be cancelled. FHA is better for borrowers with lower credit scores or minimal savings. See our FHA vs Conventional comparison for a detailed breakdown.
Conforming loans meet Fannie Mae/Freddie Mac guidelines and fall within loan limits ($766,550 in most areas for 2024). Non-conforming (jumbo) loans exceed these limits and typically require higher credit scores, larger down payments, and have higher rates.