Conventional Loans

A conventional loan is any mortgage that isn’t insured or guaranteed by a government agency, meaning no FHA, VA, or USDA backing. Most conventional loans are “conforming,” meaning they follow the rules set by Fannie Mae and Freddie Mac, including the 2026 loan limit of $832,750 in most U.S. counties. It’s the most common type of mortgage in the country, and if you have solid credit and even a modest down payment, it’s usually the first option worth pricing.

How a conventional loan works

With a government-backed loan, a federal agency insures the lender against loss. With a conventional loan, that role is played by the private market: the loan is underwritten to Fannie Mae or Freddie Mac guidelines and typically sold to one of them after closing. You’ll never notice the sale as a borrower (your servicer and payment terms carry over), but those guidelines are why conventional lending has consistent nationwide rules for credit, down payment, and debt-to-income ratios.

Conventional loans come in every common structure: fixed-rate terms from 10 to 30 years, and adjustable-rate versions with initial fixed periods of 5, 7, or 10 years.

Two vocabulary items save a lot of confusion:

Conforming: a conventional loan at or under the Fannie/Freddie limit ($832,750 for a single-family home in most areas in 2026; up to $1,249,125 in designated high-cost counties; limits reset annually).
Jumbo: a conventional loan above that limit, underwritten to a lender’s own standards. If your loan amount is in that territory, see our jumbo loans page.

Who qualifies

Conventional guidelines are more credit-sensitive than government programs, but the entry bar is lower than most people assume:

Credit score of 620 or higher. Pricing improves meaningfully at 680, 700, 720, and 740+, because conventional loan pricing is tiered by score and down payment together.
Down payment of 3% to 5%. Certain programs allow 3% for qualifying first-time buyers; 5% is the standard minimum otherwise. Gift funds from family are allowed.
Debt-to-income ratio generally up to 45–50%, depending on compensating factors like reserves and credit strength.
Two years of stable employment or income history. Self-employed borrowers typically document with two years of tax returns.
Property standards. The home needs a satisfactory appraisal, but conventional appraisals are generally less strict about property condition than FHA appraisals.

Conventional is also the go-to program for situations government loans won’t touch: second homes, investment properties, and many condo types.

What it costs

Interest rate. Conventional pricing is risk-based: your rate reflects your credit score, down payment, property type, and loan purpose. Strong-credit borrowers often price better on conventional than on FHA; lower-credit borrowers often don’t.
Private mortgage insurance (PMI). Required when you put down less than 20%. PMI is a monthly premium that varies with your score and down payment; borrowers with high scores pay much less than the horror stories suggest. Crucially, PMI is cancellable: you can request removal at 80% loan-to-value and it drops automatically at 78%. That’s a structural advantage over FHA loans, where mortgage insurance usually runs for the life of the loan.
Closing costs. Typically 2–5% of the loan amount, covering origination, appraisal, title, and prepaid taxes and insurance. No upfront government insurance premium, unlike FHA and USDA.

You can model payments with and without PMI in our calculator suite.

Pros and cons

Pros:

PMI is temporary and cancellable, with no life-of-loan insurance
No upfront mortgage insurance premium or funding fee
Best-in-market pricing for borrowers with strong credit
Works for second homes and investment properties, not just primary residences
Higher loan amounts than FHA in most counties, and more flexible property standards
Down payments as low as 3% for qualifying first-time buyers

Cons:

More credit-sensitive: below roughly 680, pricing stiffens, and below 620 you’re generally out of the program
PMI on a low down payment with a modest credit score can be pricier than FHA’s insurance
Tighter debt-to-income flexibility than FHA in some scenarios
No zero-down option; for that, see VA or USDA if you’re eligible

Conventional vs. FHA

This is the comparison most buyers actually face. The short version: conventional rewards strong credit; FHA forgives weaker credit.

If your score is roughly 700+, conventional usually wins: better pricing, cancellable PMI, and no upfront insurance premium.
If your score is in the low-to-mid 600s, FHA often produces a lower payment despite its permanent insurance, because FHA’s pricing doesn’t punish the score the way conventional does.
In the middle, it’s genuinely worth pricing both. That comparison is exactly what we’re for: we run the same scenario through both programs and show you the numbers side by side.

Getting started with Priority Home Mortgage

Priority Home Mortgage is a Grand Rapids, Michigan-based direct lender with branch teams in Michigan, Florida, Colorado, Tennessee, and North Carolina. We underwrite conventional loans in-house, so the quote you get is backed by the team that actually approves the file, with PMI quoted from competing insurers, where the real savings often hide. Talk to a local loan officer, or start with our quick quote form and we’ll show you real numbers for your situation.

Conventional Loans: your questions, answered

Do I really need 20% down for a conventional loan?

No. That's one of the most persistent myths in mortgage lending. Conventional programs allow as little as 3% down for qualifying first-time buyers and 5% for most others. What 20% gets you is no private mortgage insurance, but plenty of buyers put down less and simply carry PMI until they build 20% equity.

What credit score do I need for a conventional loan?

Most lenders look for at least 620. Pricing improves as your score rises, and the best conventional pricing typically starts around 740 and up. If your score is in the low 600s, an FHA loan may price out better because FHA pricing is less sensitive to credit score.

How do I get rid of PMI?

You can request cancellation once your loan balance reaches 80% of the home's original value, and lenders must automatically remove it at 78%. If your home has appreciated, you may be able to cancel earlier based on a new appraisal. This is a real advantage over FHA, where the mortgage insurance usually lasts the life of the loan when you put less than 10% down.

What's the difference between conforming and conventional?

Conventional means not government-insured: no FHA, VA, or USDA backing. Conforming means the loan also fits Fannie Mae and Freddie Mac's rules, including the loan limit ($832,750 in most areas for 2026). Most conventional loans are conforming; a conventional loan above the limit is a jumbo loan.

Can I use a conventional loan for a second home or rental?

Yes. This is one of conventional lending's biggest advantages. FHA, VA, and USDA loans are for primary residences only, but conventional financing covers second homes and investment properties, generally with larger down payment requirements (often 10% for second homes and 15–25% for rentals).

What is a debt-to-income ratio and what does mine need to be?

DTI is your total monthly debt payments, including the new mortgage, divided by gross monthly income. Conventional guidelines generally allow up to 45–50% depending on the strength of the rest of your file. Lower is better for both approval odds and peace of mind.