What is Conventional Loan?

A conventional loan is a private-sector mortgage that is not insured, guaranteed, or backed by any government agency (such as the FHA, VA, or USDA). Instead, these loans are originated by private entities (such as commercial banks, credit unions, and independent mortgage companies) and are typically structured to conform to the underwriting and packaging guidelines set by Fannie Mae and Freddie Mac. Conventional mortgages represent the largest segment of the residential mortgage market in the United States and are widely favored by borrowers with stable employment histories, solid credit profiles, and moderate-to-large down payments.

Conventional loans are broadly categorized into conforming and non-conforming options. Conforming loans adhere to the maximum loan size limits established annually by the Federal Housing Finance Agency (FHFA); for 2026, the baseline limit for a single-family conforming loan is $832,750. Mortgages that exceed this regional limit are classified as non-conforming jumbo loans, which lenders retain on their own balance sheets or sell to private investors rather than GSEs. Conventional loans typically require a minimum credit score of 620, maximum debt-to-income (DTI) ratios between 43% and 45%, and a down payment of at least 3% to 5%. If a borrower contributes less than 20% down, they must pay Private Mortgage Insurance (PMI). Unlike FHA mortgage insurance, conventional PMI is cancelable: under the federal Homeowners Protection Act of 1998, it must automatically terminate once the loan balance is scheduled to reach 78% of the home's original value.