Conventional loans are a common type of mortgage offered by most lenders. They’re often best for borrowers with strong credit — scores of 620 or above qualify whereas 700 or higher tend to get the best rates — who can make a down payment of 3% or more.
What is a conventional mortgage?
A conventional loan is a type of mortgage that isn’t backed by a government agency, such as the Federal Housing Administration or the Department of Veterans Affairs. It’s the most common type of home loan.
Conventional mortgages that meet the down payment and income requirements set by Fannie Mae and Freddie Mac and conform to the loan limits set by the Federal Housing Finance Agency (FHFA) are called “conforming loans.” Conventional loans that go above those limits are called “jumbo loans.”
Did you know...
Only 37% of Americans know a 20% down payment isn't required, according to NerdWallet's 2026 home buyer report. Many people mistakenly believe 20% is required, but depending on your financial status and the amount you're borrowing, you may be able to make a down payment that's as low as 3% with a conventional loan. However, a higher down payment may help get you a lower rate.Comparing government loans and conventional mortgages
Government-backed home loans are insured by federal agencies. This protects the lender if the borrower fails to repay the loan and is meant to encourage lenders to offer mortgages to a wider range of home buyers.
Conventional mortgages are offered by many lenders that also offer government-backed loans. Lenders generally view conventional loans as riskier because they’re not guaranteed by the government, so conventional mortgages tend to have tougher requirements.
Conventional loans | Government loans | |
|---|---|---|
Who backs the loan? | Private lenders | Federal government agencies |
Who qualifies? | Anyone who meets the lender's requirements | Qualifications vary by program and may depend on income, location, military service or other requirements |
Lending standards | Stricter | More flexible |
Down payment | Can be as low as 3% | FHA: 3.5%; VA: 0%; USDA: 0% |
Mortgage insurance | Typically required with less than 20% down | FHA has mortgage insurance, while VA and USDA have different fees/requirements. |
Interest rates | Tend to be higher | Tend to be lower |
Property / occupancy requirements | More flexible. Can be used for primary residences, second homes, and investment properties. | More restrictive. Usually requires the property to be your primary residence, with specific property standards. |
Best for | Borrowers with good credit and stable finances | First-time buyers or borrowers with lower credit/smaller down payments |
Mortgages backed by government agencies offer different qualifications that can make them more attractive to some home buyers.
- FHA loans, guaranteed by the Federal Housing Administration, aim to make buying homes more affordable for low- to middle-income borrowers, with relaxed lending standards, down payments as low as 3.5% and competitive interest rates.
- VA loans are guaranteed by the U.S Department of Veterans Affairs and are available only to active service members and veterans. VA loans can have down payments as low as 0%.
- USDA loans, backed by the U.S. Department of Agriculture, are geared toward properties in areas designated as rural or suburban. The USDA also makes direct loans to some low-income borrowers.
Conventional loans aren't limited to borrowers based on income, location or military status. Anyone who is able to meet a lender's standards is eligible for a conventional mortgage.
What kinds of conventional loans are available?
Conventional mortgages fall into two categories: “conforming” and “nonconforming” loans.
Conforming loans
Conforming loans follow the guidelines set by Fannie Mae and Freddie Mac, two government-sponsored enterprises that provide money for the U.S. housing market. The best-known rule has to do with the size of the loan. In 2026, the conforming loan limit for single-family homes in most of the continental U.S. is $832,750. Higher-cost areas, such as Hawaii and Alaska, have higher limits, up to $1,873,675 for single-family homes.
» MORE: Types of conventional loans
Nonconforming loans
Many nonconforming loans are jumbo loans, which are for home buyers who need to borrow an amount that's higher than the conforming limit for the area.
Other types include non-qualified mortgages, known as non-QM loans. Often, these loans are made to borrowers with poor credit, high debt or recent bankruptcy, or to self-employed borrowers with nontraditional incomes.
Lenders typically charge higher rates for jumbos and other nonconforming loans. These loans may carry other fees or insurance requirements due to their riskier nature.
Advantages of conventional loans
Compared with government-backed loans, qualifying for a conventional mortgage may be tougher, but a conventional loan can be a good option for many home buyers.
- More property types: In addition to jumbo loans for pricier homes, conventional loans can be used for a second home or an investment property.
- More control over mortgage insurance: If your down payment on a conventional loan is less than 20%, you'll have to get private mortgage insurance, which typically costs between 0.46% and 1.5% of the loan amount annually, according to the Urban Institute. Once your principal loan balance is scheduled to drop to 80% of the home’s value, however, you can ask your servicer to cancel your PMI. In contrast, FHA mortgage insurance premiums can last for the life of the loan.
- No program-specific fees: Though you'll likely still pay fees to the lender, conventional loans don't have the additional program-specific costs of government-backed loans. For example, with an FHA loan you'll pay a 1.75% upfront mortgage insurance premium; VA loans have a funding fee of 1.25 to 3.3%, depending on your down payment.
- More choices in loan structure: Though 30-year fixed-rate conventional mortgages are the most common, you can find other terms (such as 15- or 20-year loans), as well as adjustable-rate mortgages. Since lenders don't have to stick to government-prescribed programs, they can create more options.
Frequently Asked Questions
Do you have to put 20% down on a conventional loan?
No, this is a common misconception. Conventional loans can require as little as 3% down for qualified borrowers, while 20% is typically the threshold for avoiding PMI.
How difficult is it to get a conventional loan?
Conventional loans are generally harder to qualify for than government-backed loans, especially with lower credit or limited finances. Lenders typically look closely at your credit, income, debt and down payment.
What would disqualify a house from a conventional loan?
A house may not qualify for a conventional loan if it has major structural, safety or legal issues, such as serious damage or an unmarketable title. Minor cosmetic issues usually won’t disqualify it.
NerdWallet writer Isabella Angelos contributed to this story.
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