What is a conventional mortgage, really?
Not backed by FHA, VA, or USDA - a conventional loan is the most common type of mortgage in America, and often more flexible than people assume. Here's how it actually works, who it fits, and what you'll need to qualify.
- Down payments as low as 3-5%
- Works for primary, second, or investment homes
- Mortgage insurance can often be removed later
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A conventional loan is the "default" mortgage - here's what that means
Conventional mortgages aren't insured or guaranteed by a government agency. Instead, they typically follow underwriting guidelines set by Fannie Mae and Freddie Mac - the two entities that buy most conventional loans from lenders after closing. That's actually good news for borrowers: it means conventional guidelines are well-established, widely available, and highly competitive between lenders.
Not Government-Backed
Unlike FHA, VA, or USDA loans, conventional mortgages aren't insured by a federal agency - qualification is based on standard Fannie Mae/Freddie Mac guidelines.
Flexible Occupancy
Conventional loans can finance a primary residence, a second home, or - depending on qualification - an investment property, which isn't true of most government-backed programs.
Mortgage Insurance That Can Go Away
Put down less than 20% and you'll likely pay private mortgage insurance (PMI)- but once you build enough equity, PMI on a conventional loan can typically be removed.
You don't need 20% down - that's a myth
The biggest misconception about conventional loans is the 20%-down rule. Some conventional programs allow as little as 3-5% down for qualified borrowers on a primary residence. The tradeoff is usually PMI until you build equity - which, as noted above, isn't permanent.
Credit & Income
Credit score, income and employment history, and debt-to-income ratio all factor into your rate and how much down payment is required.
Down Payment or Equity
Primary residences generally have more flexible down payment options than second homes or investment properties.
Gift Funds
In many cases, part or all of your down payment can come from a gifted contribution from family - see the rules here.
How it stacks up against FHA
Neither loan type is universally "better"- it depends on your credit, your down payment, and what you're buying. Here's the short version (the full comparison is here).
| Feature | Conventional | FHA |
|---|---|---|
| Backing | Not government-insured | Insured by the FHA |
| Typical fit | Solid credit, standard qualification | More flexible credit/qualification terms |
| Property use | Primary, second home, or investment | Primary residence only |
| Mortgage insurance | Removable once you build equity | Often required for the life of the loan |
Not sure which fits your situation?
Who ends up choosing conventional
Not just for repeat buyers
Many first-time buyers assume FHA is their only low-down-payment option - plenty also qualify for a conventional loan with as little as 3% down.
Buying a bigger or pricier home
Borrowers purchasing a larger or more expensive home often explore conventional loans for their flexibility and broad lender availability.
Beyond your primary residence
Conventional financing is commonly used for eligible second homes and, in the right scenario, investment properties.
Conventional mortgage FAQs
How much down payment does a conventional loan require?+
It's a common misconception that conventional loans always require 20% down. Some conventional programs allow down payments as low as 3-5% for qualified borrowers, particularly on a primary residence.
Is a conventional loan better than FHA?+
Neither is universally "better"- they fit different profiles. Conventional loans often suit borrowers with stronger credit and more flexibility on property type. FHA can be easier to qualify for with lower credit scores, but carries its own mortgage insurance rules. See our full FHA vs. Conventional comparison.
Can I use a conventional loan for a second home or investment property?+
Yes, depending on qualification. Conventional financing is commonly used for primary residences, second homes, and, in many cases, investment properties - unlike FHA and VA loans, which are primarily for primary residences.
Can I remove mortgage insurance on a conventional loan?+
In many cases, yes. Once you reach a certain equity position, conventional mortgage insurance can often be removed - a meaningful difference from FHA loans, where mortgage insurance rules are stricter.
Related guides
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