What Is a Conventional Loan?
A conventional loan is a mortgage that is not insured or guaranteed by a government agency. These loans follow guidelines set by Fannie Mae and Freddie Mac and are offered by private lenders.
Conventional financing is widely used for primary residences, second homes, and investment properties, making it one of the most flexible mortgage options available.
Conventional Loan Requirements
Conventional loans typically favor borrowers with stronger credit and stable financial profiles, though requirements vary by lender and program type.
- Credit profile: Generally requires good to strong credit, depending on the loan structure.
- Down payment: Options range from low down payment programs to larger equity positions.
- Debt-to-income: Monthly debt obligations are reviewed against verified income.
- Income and assets: Standard documentation for employment, income, and reserves is required.
- Occupancy: Available for primary homes, second homes, and some investment properties.
Benefits of Conventional Loans
- Competitive interest rates for well-qualified borrowers
- Flexible down payment options depending on program and credit profile
- No upfront mortgage insurance
- PMI may be removable once sufficient equity is reached
- Broad property eligibility including second homes and investments
Private Mortgage Insurance (PMI)
Conventional loans with lower down payments may require private mortgage insurance (PMI). PMI protects the lender and allows borrowers to purchase with less upfront cash.
- PMI is typically monthly and included in the mortgage payment
- PMI can often be removed once equity thresholds are met
- Cost varies based on credit score, loan size, and down payment
Many borrowers choose conventional loans specifically for the ability to eliminate PMI over time.
Conventional Loans vs FHA Loans
Conventional and FHA loans serve different borrower profiles. The best choice depends on credit strength, down payment strategy, and long-term plans.
For a detailed, side-by-side comparison of costs, mortgage insurance differences, and common approval scenarios, see our FHA vs Conventional Loans guide .
| Category | Conventional Loan | FHA Loan |
|---|---|---|
| Credit flexibility | Typically favors stronger credit profiles | More flexible credit guidelines |
| Mortgage insurance | PMI may apply, often removable | MIP required (upfront and annual) |
| Property types | Primary, second home, some investment | Primarily owner-occupied homes |
Who Should Consider a Conventional Loan?
- Borrowers with good to strong credit profiles
- Buyers planning long-term ownership
- Homeowners looking to avoid permanent mortgage insurance
- Second-home or investment property buyers
- Buyers with flexible down payment strategies
Conventional Loans by State
Conventional loan options and guidelines can vary slightly by location and lender. Select your state below to explore details and available programs.
Conventional Loan FAQs
Do conventional loans require mortgage insurance?
Mortgage insurance may be required with lower down payments, but it is often removable once equity requirements are met.
Can conventional loans be used for investment properties?
Yes. Conventional financing is commonly used for second homes and some investment properties, subject to guidelines.
Are conventional loans only for high-credit borrowers?
While conventional loans typically favor stronger credit, many programs exist for a wide range of qualified borrowers.
Get Started with a Conventional Loan
We’ll compare conventional loan options side by side and help you determine the best structure for your goals, payment comfort, and long-term plans.
Related Loan Programs
Disclosure: This information is for educational purposes only and is not a commitment to lend. Loan programs, terms, and requirements vary by lender and are subject to change.
NMLS: 80777
Licensed mortgage broker in Missouri, Kansas, and Louisiana.
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