A conventional loan is a type of mortgage loan that is not insured or guaranteed by the government, unlike loans backed by the Federal Housing Administration (FHA), Department of Veterans Affairs (VA), or Department of Agriculture (USDA)
. Instead, conventional loans are offered and backed by private lenders such as banks, credit unions, and mortgage companies
. Conventional loans can be categorized into two main types:
- Conforming loans : These loans meet the guidelines set by government-sponsored enterprises like Fannie Mae and Freddie Mac, including maximum loan limits and borrower qualifications
- Non-conforming loans : These do not meet those standards and often include jumbo loans that exceed conforming loan limits
Key features of conventional loans include:
- Typically require a higher credit score to qualify, often around 620 or higher, with some lenders preferring scores of 660 or above
- Down payment requirements can be as low as 3%, but if less than 20% is put down, private mortgage insurance (PMI) is usually required
- Loan terms commonly range from 15 to 30 years, with options for fixed or adjustable interest rates
- Debt-to-income ratios generally need to be below 43%, though some lenders may allow up to 49% depending on other factors
- Loan limits for conforming loans in 2025 are generally up to $806,500 for single-family homes, with higher limits in designated high-cost areas
Conventional loans are the most common type of mortgage in the U.S., used by about 73% of homebuyers for single-family homes
. They often have stricter qualification criteria compared to government- backed loans but offer flexibility in terms of loan amounts and down payments
. In summary, a conventional loan is a privately backed mortgage not insured by the government, available in conforming and non-conforming forms, with specific credit, down payment, and loan limit requirements set by lenders and government-sponsored enterprises
