What Is a Conventional Loan?
If you’re starting your home buying journey, you’ve probably heard the term “conventional loan.” It’s one of the most popular types of mortgages among both experienced and first-time homebuyers alike.
A conventional loan can offer flexibility, competitive rates, and strong long-term value. Let’s break down what it is, how it works, and whether it’s the right choice for you.
What Is a Conventional Loan?
A conventional loan is any home loan that isn’t backed by a government agency such as the FHA, VA, or USDA. These loans are offered by private lenders like banks, credit unions, and mortgage companies — including First Heritage Mortgage.
While not government-insured, many conventional loans follow standards set by Fannie Mae and Freddie Mac, two government-sponsored enterprises that buy and guarantee mortgages from lenders.
That’s why you’ll often hear the term “conforming loan” used interchangeably with conventional loan, even though not every conventional loan is conforming.
Conventional vs. Government-Backed Loans
Conventional loans are ideal for borrowers with strong credit, steady income, and the ability to make a down payment of at least 3 to 5 percent. With 20 percent down, you can avoid private mortgage insurance (PMI) entirely.
They differ from government-backed loans like FHA, VA, and USDA mortgages, which are insured or guaranteed by federal programs designed to help specific buyer groups.
Here’s a quick comparison:
| Feature | Conventional | FHA | VA | USDA |
|---|---|---|---|---|
| Minimum down payment | As low as 3 percent | 3.5 percent | 0 percent for eligible borrowers | 0 percent in eligible areas |
| Typical credit score | 620 and higher | 580 and higher in many cases | 620 and higher preferred | 640 and higher preferred |
| Mortgage insurance | Required if under 20 percent down. Can be removed at 20 percent equity. | Upfront and monthly mortgage insurance for most loans. | No monthly MI. Upfront funding fee applies. | Guarantee fee upfront and annual. |
| Who it fits | Strong credit and steady income. Good option for buyers putting 5 to 20 percent down. | Buyers who need more flexible credit or higher DTI. | Active duty, veterans, and eligible surviving spouses. | Buyers in rural or eligible suburban areas with moderate income. |
| Property location limits | Standard conforming limits apply. | Standard FHA county limits apply. | VA county loan limits may apply. | Must be in a USDA eligible area. |
Conventional Loan Requirements
To qualify for a conventional loan, most borrowers will need:
- A minimum credit score of 620 (higher scores unlock better rates)
- A debt-to-income (DTI) ratio of 50 percent or less
- A down payment as low as 3 percent for first-time buyers
- Stable employment and income documentation (pay stubs, W-2s, or tax returns)
- Sufficient assets for closing costs and reserves
If you can make a 20 percent down payment, you’ll eliminate PMI and potentially save hundreds each month.
Benefits of a Conventional Loan
- Lower long-term costs when compared to FHA or USDA loans
- Flexible loan terms (10, 15, 20, or 30 years)
- No upfront funding fee
- PMI removal once you reach 20 percent equity
- Available for primary, second home, or investment properties
Frequently Asked Questions (FAQ) About Conventional Loans
What credit score do you need for a conventional loan?
Most lenders require a minimum credit score of 620 to qualify for a conventional loan. Borrowers with higher scores may qualify for better interest rates and lower PMI.
How much do I need for a down payment on a conventional loan?
You can buy a home with as little as 3 percent down through Fannie Mae’s HomeReady® or Freddie Mac’s Home Possible® programs. However, a 20 percent down payment lets you avoid private mortgage insurance (PMI) and lower your monthly costs.
Can first-time homebuyers get a conventional loan?
Yes. Many first-time homebuyers qualify for low-down-payment conventional loans if they meet credit and income guidelines. These programs often include homebuyer education courses and reduced PMI requirements.
What’s the difference between a conventional loan and an FHA loan?
A conventional loan is not backed by the government and generally fits borrowers with strong credit and steady income. An FHA loan, insured by the Federal Housing Administration, has lower credit score and down payment requirements, but it comes with upfront and ongoing mortgage insurance costs.
Can I remove PMI on a conventional loan?
Yes. Once you’ve reached 20 percent equity in your home, you can request to cancel your PMI. When you reach 22 percent equity, your lender must remove it automatically. This is one of the biggest advantages over FHA loans, where mortgage insurance often lasts for the life of the loan.
What’s the maximum loan amount for a conventional loan?
Conforming loan limits are set each year by the Federal Housing Finance Agency (FHFA). In 2025, most counties have a conforming loan limit of $806,500, with a higher limit of $1,209,750 in high-cost counties. Your loan officer can confirm the exact limit in your area.
Can I use a conventional loan for an investment property or second home?
Yes. Conventional loans are available for primary residences, second homes, and investment properties. Down payment requirements vary, usually 10 percent for a second home and 15 to 20 percent for investment properties.
At First Heritage Mortgage, we’re proud to help families and first-time buyers achieve homeownership with personalized lending options.
Ready to see if you qualify for a conventional loan? Connect with a loan officer today to get started.
The included content is intended for informational purposes only and should not be relied upon as professional advice. Additional terms and conditions apply. Not all applicants will qualify. Consult with a finance professional for tax advice or a mortgage professional to address your mortgage questions or concerns. This is an advertisement. Prepared 05/29/2020. Updated 11/8/2025.
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