A Guide to Conventional Loans

By sharon-leach March 8, 2024

In the journey toward owning a home, one of the critical decisions you’ll encounter is selecting the right mortgage. While various options exist, conventional loans stand out as a popular choice for many prospective homeowners. Let’s delve into what makes conventional loans a compelling option and explore how they can pave the way to your dream home.

What are Conventional Loans? Conventional loans are mortgage loans that are not backed or insured by the government. Unlike FHA, VA, or USDA loans, which are guaranteed by federal agencies, conventional loans are offered by private lenders, such as banks and mortgage companies. This distinction means conventional loans follow guidelines set by private entities rather than government agencies.

Key Features:

  1. Flexibility: Conventional loans offer flexibility in terms of loan amounts and eligibility criteria. While government-backed loans have specific requirements, conventional loans provide more leeway, allowing borrowers with diverse financial backgrounds to qualify.
  2. Down Payment Options: Conventional loans typically require a down payment ranging from 3% to 20% of the home’s purchase price. The ability to tailor the down payment amount offers borrowers greater control over their upfront costs and monthly payments.
  3. Credit Score Requirements: While conventional loans generally require a higher credit score compared to government-backed loans, they offer borrowers with excellent credit histories favorable interest rates and terms. However, borrowers with less-than-perfect credit may still qualify for conventional loans with slightly higher interest rates.
  4. Mortgage Insurance: Conventional loans may require private mortgage insurance (PMI) if the down payment is less than 20% of the home’s purchase price. PMI protects the lender in case the borrower defaults on the loan. However, once the borrower’s equity in the home reaches 20%, PMI can often be canceled, reducing monthly payments.
  5. Loan Limits: Conforming conventional loans adhere to loan limits set by government-sponsored entities like Fannie Mae and Freddie Mac. These limits vary by location and are subject to change annually. Non-conforming conventional loans, often referred to as jumbo loans, exceed these limits and are suitable for high-priced properties.


  1. Competitive Interest Rates: Conventional loans often feature competitive interest rates, particularly for borrowers with strong credit profiles.
  2. Faster Processing: With fewer government regulations to navigate, conventional loans may undergo a faster approval process, allowing borrowers to close on their homes more quickly.
  3. No Property Restrictions: Unlike some government-backed loans that may have restrictions on property types, conventional loans offer more flexibility in choosing the property you want to purchase.


  1. Higher Credit Standards: Conventional loans typically require a higher credit score compared to FHA, VA, or USDA loans. Borrowers with lower credit scores may face challenges in securing favorable loan terms.
  2. PMI Costs: Borrowers who make a down payment of less than 20% will likely need to pay for private mortgage insurance, adding to their monthly housing expenses.
  3. Larger Down Payments: While conventional loans offer down payment flexibility, some borrowers may find it challenging to save for a sizable down payment, especially in high-cost housing markets.

In conclusion, conventional loans offer a versatile and accessible path to homeownership for many individuals. With their flexibility, competitive rates, and broader eligibility criteria, they remain a cornerstone of the mortgage market. However, it’s essential to weigh the pros and cons carefully and consult with a mortgage professional to determine if a conventional loan aligns with your financial goals and circumstances. By understanding the nuances of conventional loans, you can confidently navigate the path to owning your dream home.