A conventional loan is a type of mortgage that is not insured or guaranteed by a government agency, such as the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the U.S. Department of Agriculture (USDA). Instead, these loans are offered by private lenders, such as banks, credit unions, and mortgage companies.

Here are some key features of conventional loans:

1. Down Payment Requirements: Conventional loans typically require a down payment of 5% to 20% of the home’s purchase price. However, some conventional loan programs allow for down payments as low as 3% for qualified borrowers.
2. Private Mortgage Insurance (PMI): If the down payment is less than 20%, borrowers are usually required to pay for private mortgage insurance (PMI). PMI protects the lender in case the borrower defaults on the loan. Once the loan-to-value (LTV) ratio reaches 80%, PMI can typically be removed.
3. Credit Score Requirements: Conventional loans generally require higher credit scores compared to government-backed loans. A minimum credit score of 620 is often needed to qualify, but a higher score can result in better interest rates and loan terms.
4. Loan Limits: Conventional loans are subject to conforming loan limits set by the Federal Housing Finance Agency (FHFA). In most areas, the 2024 conforming loan limit is $726,200 for a single-family home. Loans above this amount are considered jumbo loans and may have stricter qualifying criteria.
5. Interest Rates: Interest rates for conventional loans can vary based on the borrower’s credit score, down payment, and market conditions. Generally, borrowers with higher credit scores and larger down payments can secure lower interest rates.
6. Flexibility: Conventional loans offer more flexibility in terms of property types, including primary residences, second homes, and investment properties. They also allow for various loan terms, typically ranging from 15 to 30 years.
7. No Upfront Mortgage Insurance: Unlike FHA loans, conventional loans do not require an upfront mortgage insurance premium, which can make them more affordable in the short term.

Conventional loans are popular among borrowers with strong credit histories and the ability to make larger down payments. They offer competitive interest rates and more options for borrowers who meet the stricter qualification criteria.