What is a conventional loan?
A conventional loan is any mortgage not backed by a government agency (FHA, VA, USDA). It is what most people picture when they think of a "normal" mortgage — and it funds the majority of homes in the U.S.
Because there is no government insurance, the lender carries the risk. That means the qualification bar is a little higher (a FICO of 620+ and a steady income), but the reward is real: no upfront mortgage insurance, a PMI that cancels automatically once you reach 20% equity, and rates that are often lower than FHA for borrowers with good credit.
Conventional loans follow conforming loan limits set by the FHFA ($806,500 for a single-family home in 2025). Go above that and you enter Jumbo territory — still conventional, with its own rules.
Conventional at a glance
Conventional loans: did you know?
A few facts that change how buyers compare conventional vs. FHA.
Often cheaper than FHA for good credit
For FICO scores of 680 and above, conventional PMI is usually cheaper than FHA's MIP — and it goes away, while FHA MIP stays for the life of most loans.
PMI is not forever
On a conventional loan, PMI drops off automatically when your loan balance reaches 78% of the original home value. You can also request removal at 80%.
No upfront mortgage insurance
FHA charges 1.75% upfront MIP. Conventional has none — which means a smaller cash-to-close and a smaller loan balance from day one.
The $806,500 line
In 2025, the conforming loan limit for a single-family home is $806,500. Loans at or below it get the best rates; above it, you are in Jumbo territory.
You can finance a second home
Conventional is the only common loan that lets you buy a vacation or second home with as little as 10% down — FHA and VA require you to live in the home.
3% down is real
Fannie Mae and Freddie Mac offer 3%-down conventional loans (Conventional 97, HomeReady, HomePossible) — a real alternative to FHA for buyers with good credit and limited savings.
Conventional Payment Calculator
Includes PMI when you put less than 20% down — and shows it dropping to $0 once you reach 20% equity. Adjust your credit score to see how it changes the math.
Conventional Payment Calculator
Includes PMI when you put less than 20% down — and shows it dropping to $0 once you reach 20% equity. Adjust your credit score to see how it changes the math.
Estimate only. PMI rates vary by lender, credit score, and loan type; the tiers shown are industry averages. On a conventional loan PMI cancels automatically at 78% LTV and can be requested at 80%. Not a commitment to lend; your actual rate, PMI, and terms depend on your full file.
Who a conventional loan fits best
- Buyers with a FICO of 680 or higher — that is where conventional beats FHA on cost.
- People who can put 5% or more down and want a PMI that eventually disappears.
- Buyers of a second home, vacation home, or investment property — conventional is the path for those.
- Anyone who wants the lowest long-term cost and does not need government-backed flexibility.
- Buyers with good credit and limited savings using a 3%-down Conventional 97 or HomeReady program.
Conventional loan FAQ
3% for first-time buyers through Conventional 97, HomeReady, or HomePossible. Repeat buyers typically need 5% for a primary home, 10% for a second home, and 10–15% for an investment property.
Educational content only. This page is not financial, legal, or tax advice, a commitment to lend, or an offer of credit. Program requirements and terms vary by lender and change over time; figures cited reflect the sources below as of the dates noted, and eligibility always depends on your full financial profile. Liuver Duran, NMLS #2579601. Sociable Mortgage LLC, NMLS #2498240. Equal Housing Opportunity.
Sources
Down payment assistance works with conventional, too
Many buyers assume a 3%-down conventional loan means you need the full 3% in savings. In Texas and Florida there are grants and second-lien programs that can cover your down payment or closing costs on a conventional loan — and they stack with Conventional 97, HomeReady, and HomePossible. See what is available in your county.