the classic. for a reason.
Conventional loans follow Fannie Mae and Freddie Mac guidelines, which is a boring sentence that hides a boring-but-good truth: they're standardized, they're fast, and they're what most homebuyers actually end up with. If your credit is respectable and your down payment isn't scraping bottom, this is usually the cheapest way to buy a home over 30 years.
What actually makes a loan "conventional"
A conventional loan is any mortgage that isn't backed by a government agency (so, not FHA, VA, or USDA). Most of them are "conforming," meaning they follow Fannie Mae and Freddie Mac's rulebook and stay under the county loan limit. Cross that limit and you're in jumbo territory — see that page.
Because the rules are standardized, underwriting is fast and predictable. If your file makes sense on paper, a conventional loan usually clears faster than an FHA one — and without the government-loan overlays lenders like to pile on.
You do not need 20% down
The 20%-down thing is a myth that costs first-time buyers years of rent. Fannie's HomeReady and Freddie's Home Possible programs let qualified buyers put down as little as 3%. You'll pay private mortgage insurance (PMI) until you have 20% equity — but PMI on a conventional loan is cancellable, and it's often cheaper than FHA's permanent mortgage insurance.
Rule of thumb: if your credit is 700+ and you plan to be in the home more than a few years, a low-down conventional loan usually beats FHA over the life of the loan.
PMI: annoying, not evil
PMI is what makes low-down-payment conventional loans possible. It's insurance the lender takes out (that you pay for) in case you stop paying. Rates depend on your credit and down payment — usually 0.3% to 1.5% of the loan per year, baked into your monthly payment.
The good news: once you hit 20% equity — either by paying down the loan or by the home appreciating — you can request to have it removed. At 22% equity it drops automatically. FHA mortgage insurance, by contrast, sticks around for the life of the loan unless you refinance.
Best fit if…
- ✓Your credit score is 660+ (700+ is where it really sings)
- ✓You've got at least 3% saved for down payment
- ✓You want the option to drop mortgage insurance later
- ✓The home price is under your county's conforming limit
- ✓You value speed and predictability in underwriting