Conventional Loans: Traditional Home Financing Options
Conventional loans are the most common type of home mortgage, accounting for approximately 75% of all home purchases in the United States. Unlike government-backed loans (FHA, VA, USDA), conventional loans are not insured or guaranteed by a federal agency. Instead, they conform to guidelines set by Fannie Mae and Freddie Mac, making them available to a wide range of borrowers with good credit. At Aron Home Loans, we offer competitive conventional loan products with down payments as low as 3%, flexible terms from 10 to 30 years, and the ability to eliminate private mortgage insurance once you reach 20% equity. Whether you're buying your first home, upgrading to a larger property, or investing in real estate, conventional loans provide the flexibility and competitive rates you need.
What is a Conventional Loan?
A conventional loan is a mortgage that is not insured or guaranteed by any government agency. These loans follow guidelines established by Fannie Mae and Freddie Mac, two government-sponsored enterprises that purchase mortgages from lenders. Because there's no government backing, conventional loans typically have stricter qualification requirements, including higher credit scores and larger down payments. However, they also offer significant advantages like lower overall costs for qualified borrowers, more flexibility in property types, and the ability to remove mortgage insurance.
Conforming vs. Non-Conforming Loans
Conventional loans fall into two categories: conforming and non-conforming. Conforming loans meet Fannie Mae and Freddie Mac guidelines, including loan limits that are updated annually. For 2026, the conforming loan limit is $832,750 for most U.S. counties, and up to $1,249,125 in high-cost areas. Non-conforming loans (also called jumbo loans) exceed these limits and have different requirements. Most conventional borrowers opt for conforming loans due to their competitive rates and standardized terms.
Private Mortgage Insurance (PMI)
If your down payment is less than 20%, you'll typically need to pay private mortgage insurance (PMI). Unlike FHA mortgage insurance, PMI can be removed once you reach 20% equity in your home, either through payments or appreciation. Lenders must automatically cancel PMI when your loan balance reaches 78% of the original home value. You can also request early cancellation at 80% equity with a good payment history. PMI typically costs 0.3% to 1.5% of your loan amount annually.
Conventional Loan Interest Rates
Conventional loan rates are influenced by your credit score, down payment, loan term, and market conditions. Borrowers with higher credit scores (740+) typically qualify for the best rates. While rates fluctuate daily based on mortgage-backed securities markets, conventional loans often offer the most competitive rates for well-qualified borrowers. Fixed-rate options provide payment stability, while adjustable-rate mortgages (ARMs) offer lower initial rates for those planning shorter ownership periods.
Requirements at a Glance
| Requirement | Details |
|---|---|
| Minimum Credit Score | 620 minimum; 740+ for best rates |
| Down Payment | 3% minimum (5-20% typical) |
| Debt-to-Income Ratio | 43-50% maximum depending on other factors |
| Loan Limits (2026) | $832,750 conforming; up to $1,249,125 in high-cost areas |
| Property Types | Primary, secondary, vacation, or investment |
| Mortgage Insurance | Required if <20% down; removable at 20% equity |
| Employment | 2 years stable employment history |
Weighing Your Options
Advantages
- No upfront mortgage insurance premium
- PMI can be removed at 20% equity
- Flexible property types (primary, vacation, investment)
- Competitive interest rates for qualified borrowers
- Various term options (10, 15, 20, 30 years)
- Down payments as low as 3%
- Higher loan limits than FHA
Considerations
- Higher credit score requirements (620+)
- PMI required if less than 20% down
- Stricter debt-to-income requirements
- Less forgiving of credit issues
- May require higher reserves
How It Compares
| Category | Loan Type | Comparison |
|---|---|---|
| Down Payment | Conventional | 3-20% vs. FHA's 3.5% |
| Credit Score | Conventional | 620+ vs. FHA's 580+ |
| Mortgage Insurance | Conventional | Removable at 20% vs. FHA's lifetime MIP |
| Property Types | Conventional | Primary, secondary, investment vs. FHA primary only |
| Loan Limits | Conventional | $832,750 vs. FHA's $541,287-$1,249,125 |