Conventional Loans: Flexible Options for Qualified Borrowers

What Is a Conventional Loan?

A conventional loan is any mortgage that isn’t backed by a government agency like the FHA, VA, or USDA. Conventional loans conform to guidelines set by Fannie Mae and Freddie Mac (conforming loans) or are originated outside those standards (non-conforming, including jumbo loans).

Because the lender takes on more risk without government backing, conventional loans typically require stronger credit and income profiles than FHA loans, but they can offer advantages like lower total mortgage insurance costs and more property flexibility.

Who Conventional Loans May Fit

Conventional loans may be worth comparing if you:

• Have a credit score of 620 or higher (740+ for the most competitive terms)
• Have stable, documentable income
• Have 3% to 20% or more available for a down payment
• Are purchasing a second home or investment property (FHA and VA don’t allow this)
• Want to cancel PMI once you reach 20% equity

Down Payment Options

Conventional loans offer a range of down payment options:

• 3% down: Available through programs like Fannie Mae HomeReady and Freddie Mac Home Possible for eligible borrowers
• 5% to 19.99% down: PMI required; higher down payment typically reduces PMI cost
• 20% or more: No PMI required

Private Mortgage Insurance (PMI)

Unlike FHA’s MIP, conventional PMI is cancellable. Once you reach 20% equity in your home (either through payments or appreciation), you can request PMI removal. It automatically terminates at 22% equity based on the original amortization schedule.

Loan Limits

Conforming conventional loans must stay within loan limits set by the Federal Housing Finance Agency (FHFA). For 2025, the standard conforming limit is $806,500 in most counties. Higher limits apply in designated high-cost areas.

Benefits

• No upfront mortgage insurance (unlike FHA)
• PMI is cancellable once you reach 20% equity
• Available for primary residences, second homes, and investment properties
• Fewer property condition restrictions than FHA or VA
• Competitive rates for borrowers with strong credit

Limitations

• Higher credit score requirements than FHA
• Less flexibility for borrowers with recent credit events
• PMI required with less than 20% down
• Loan amounts capped at conforming limits (above requires jumbo financing)