Conventional Loan
What Is a Conventional Loan?
A conventional loan is a mortgage that is not insured or guaranteed by a government agency.
It is issued by private lenders and typically follows guidelines established by Fannie Mae and Freddie Mac.
Conventional loans can be either conforming or nonconforming, depending on whether they meet loan limit and underwriting standards set by those entities.
Why It Matters in a Mortgage
Conventional loans often require:
- Stronger credit profiles
- Stable income
- Lower debt-to-income ratios
They may require private mortgage insurance (PMI) if the down payment is less than 20%.
However, PMI on conventional loans can typically be removed once sufficient equity is reached.
How It Works
Borrower applies through private lender.
Loan is underwritten to agency guidelines.
Loan may be sold into the secondary market.
Conventional vs. Government-Backed
Conventional → No federal insurance
FHA/VA/USDA → Government-backed guarantee
FAQs About Conventional Loans
Is 20% down required?
No, but it avoids PMI.
Are rates competitive?
Often yes, especially for strong credit.
Can conventional loans be fixed or adjustable?
Both options are available.
Related Terms
