Conventional Loans

When people talk about mortgage options, conventional loans are often the first category mentioned. This lesson explains what makes a loan conventional, how it compares to government-backed loans covered later in this module, and general features to be aware of.

What "conventional" means

Conventional loans are the most common type of mortgage in the United States, but "conventional" is a broad category that includes many variations in terms, underwriting requirements, and features.

Conforming versus non-conforming

Within conventional loans, there is an important further distinction:

• Conforming loans meet standards, including loan size limits, set by government-sponsored enterprises that purchase mortgages from lenders. These standards help create more consistency across the mortgage market.
• Non-conforming loans do not meet those standards, often because the loan amount exceeds the applicable limit or the borrower's situation falls outside standard guidelines. Loans above conforming limits are sometimes called jumbo loans.

Because conforming loans are more standardized, they are often more widely available and may offer more competitive terms, though this varies by lender and market conditions.

Down payments and credit expectations

Down payment and credit score expectations for conventional loans vary significantly by lender, loan program, and borrower profile. Some conventional programs allow down payments well below the traditional 20 percent, while others require more. There is no single universal minimum, so it is important to ask individual lenders about their specific requirements.

Private mortgage insurance

PMI is discussed in more detail in a dedicated lesson later in this module, but it is worth knowing upfront that a smaller down payment on a conventional loan may come with an added monthly cost until enough equity is built or other conditions are met.

Who might consider a conventional loan

Conventional loans can be a good fit for borrowers with steady income, established credit history, and the ability to meet a lender's down payment and credit requirements. However, they are not the only option. Government-backed loans, covered in the following lessons, may offer different tradeoffs for borrowers who qualify, such as more flexible credit standards or lower upfront costs.

A common mistake

Because underwriting standards, insurance requirements, and available programs change and vary by lender, always confirm current details directly with lenders you are considering rather than relying on general assumptions.