What Is a Conventional Loan?

How Conventional Loans Work

Conventional mortgages are originated by banks, credit unions, and mortgage lenders, then often sold to Fannie Mae or Freddie Mac when they meet "conforming" guidelines. That secondary-market support keeps rates competitive and standards consistent nationwide.

You can choose a fixed-rate term (15, 20, or 30 years) or an adjustable-rate mortgage. Monthly payments typically cover principal, interest, taxes, and insurance — plus PMI if your down payment is under 20%.

In 2026, the conforming loan limit for a single-family home is $832,750 in most counties (higher in high-cost areas). Loans above those limits are jumbo mortgages with different underwriting rules.

Why Buyers Choose Conventional

For borrowers who qualify, conventional financing often wins on long-term cost and flexibility.

Cancellable PMI

Once you hit 20% equity, you can request PMI removal — something FHA MIP rarely allows on low-down purchases.

No upfront MIP

Skip the FHA-style upfront mortgage insurance premium that gets rolled into the loan balance.

Flexible property types

Primary residences, second homes, and many investment properties can fit conventional guidelines.

Competitive rates

Higher credit scores and larger down payments unlock sharper pricing from Fannie/Freddie overlays.

Conventional vs. Other Loan Types

Not sure if conventional is the right fit? Compare it with government-backed options we also close every week.

Feature	Conventional	FHA	VA
Min. down	3%	3.5%	$0
Credit flexibility	Moderate–strong	More flexible	Flexible for eligible veterans
Mortgage insurance	PMI (cancellable)	MIP (often life of loan)	No monthly MI
Who can use	Most buyers	Primary residence	Eligible service members & veterans

Frequently Asked Questions

A conventional loan is a mortgage that is not backed by the federal government. Conforming conventional loans meet Fannie Mae and Freddie Mac guidelines and 2026 loan limits of $832,750 in most areas.

How is a conventional loan different from FHA?

Conventional loans typically require stronger credit, allow PMI to cancel at 20% equity, and have no upfront mortgage insurance premium. FHA loans accept lower credit scores and as little as 3.5% down, but include mortgage insurance that usually lasts for the life of the loan when you put less than 10% down.

How much down payment do I need?

First-time buyers can put as little as 3% down on many conventional programs. Repeat buyers usually need 5% or more. Putting 20% down lets you avoid private mortgage insurance (PMI).

What is PMI on a conventional loan?

Private mortgage insurance protects the lender when you put less than 20% down. Unlike FHA MIP, conventional PMI can be cancelled once you reach 20% equity, and must automatically terminate at 78% of the original value.

What Is a Conventional Loan?

How Conventional Loans Work

At a Glance

Why Buyers Choose Conventional

Cancellable PMI

No upfront MIP

Flexible property types

Competitive rates

Conventional vs. Other Loan Types

Keep Exploring

Who Qualifies for a Conventional Mortgage?

What Credit Score Is Needed?

Conventional Loans Overview

First-Time Homebuyer Programs

Asset depletion loans: qualifying with wealth, not paychecks

Hoosier Homes Down Payment Assistance for Indiana Buyers

USDA loans: zero down financing for rural home buyers

Frequently Asked Questions