A conventional loan is any mortgage loan that is not insured or guaranteed by the government (such as under Federal Housing Administration, Department of Veterans Affairs, or Department of Agriculture loan programs). Conventional loans can be conforming or non-conforming.
However, conventional banks have designed several products such as credit cards, running finance, car and house loans and long-term loan facility for different customer segments but all of them simplify as a loan advanced by a bank to its customer.
FHA loans are backed by the Federal Housing Administration and offered by FHA-approved lenders. Unlike FHA loans, conventional loans are not insured or guaranteed by the government. Mortgage insurance is mandatory with FHA loans; you can avoid it on a conventional loan by putting down at least 20%.
Drawbacks include stricter requirements to qualify, large payments if market rates increase, lack of 5% equity requirement, and additional fees if borrower has a less than excellent credit score.
The minimum down payment requirement for a conventional loan is 3% of the loan amount. However, lenders may require borrowers with high DTI ratios or low credit scores to make a larger down payment. Even if it's not required, if you're able to make a higher down payment, you may want to consider doing so.
Conventional loans typically require a minimum credit score of 620, though some may require a score of 660 or higher. These loans aren't insured by a government agency and conform to certain standards set by the government-sponsored entities Fannie Mae and Freddie Mac.
Conventional loans are home loans that are not backed by government agencies like the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). Examples of conventional loans include fixed-rate mortgages, adjustable rate mortgages (ARMs), jumbo loans, and conforming loans.
Structural Issues
If the appraiser notices problems with the foundation, roof, or load-bearing walls, these issues can lead to a failed appraisal. Common structural problems include: Foundation Cracks: Large or significant cracks in the foundation can indicate serious underlying issues.
Examples of conventional in a Sentence
The number sign is the conventional symbol for labeling something measured in pounds. While microwaves heat up food more quickly, most food tastes better when it is cooked in a conventional oven. Most of her books are conventional detective stories.
Conventional mortgages are often the best choice for borrowers who have excellent credit and a down payment of at least 20 percent. These loans can be used to buy a primary home, second home or investment property, unlike FHA or VA loans, which may only be used for a primary home.
Conventional loans can require less paperwork and can be obtained more quickly than government-insured loans. Mortgage lenders can approve conventional loans without the typical delays incurred with FHA or government-backed loans.
It isn't hard to get a conventional loan if you have a 620 credit score and 3% down payment. You can get an FHA loan with a lower score, but you need a slightly higher down payment (3.5%).
Your monthly payment for a $300,000 mortgage and a 30-year loan term could range from $1,798 to $2,201, depending on your interest rate and other factors. Learn more about the upfront and long-term costs of a home loan. Aly J. Yale is a personal finance journalist with more than 12 years of experience.
✅ Non-conventional loans don't follow Fannie Mae and Freddie Mac rules. They help people with low incomes or small down payments get mortgages. ✅ Types of non-conventional loans include FHA, VA, USDA, jumbo loans, hard money loans, seller financing, and interest-only loans.
“Conventional” just means that the loan is not part of a specific government program. Conventional loans typically cost less than FHA loans but can be more difficult to get.
C. FHA loan: This is a government-backed loan designed for low-to-moderate-income borrowers that also requires lower minimum down payments. It is distinctly not a conventional mortgage.
Unlike a conventional loan a HELOC is a revolving line of credit, allowing you to borrow more than once. In that way, it's like a credit card, except with a HELOC, your home is used as collateral. A HELOC has a credit limit and a specified borrowing period, which is typically 10 years.
The requirements for a conventional loan include: Credit score: 620. Debt-to-income (DTI) ratio: 45 percent (with exceptions up to 50 percent) Down payment: 3 percent for a fixed-rate loan; 5 percent for an adjustable-rate loan.
The 2025 conforming limit for most counties in California State is $806,500, with several exceptions in higher-priced areas.
Lenders may require higher credit scores and lower debt-to-income ratios (DTI) for conventional borrowers. And although the minimum required down payment is 3%, borrowers may sometimes need to put down more to qualify for a conventional mortgage, especially if they have less-than-perfect credit.
The term “conventional” is used to distinguish these “regular” home loans from programs such as FHA and VA, which do receive government backing. In California, home appraisals are usually required for conventional mortgage loans, especially in purchase scenarios.
Conventional loan
If the buyers provide between 10% and 25% for a down payment, sellers may pay up to 6% in seller concessions. If the buyers provide more than 25% for a down payment, sellers may pay up to 9% in seller concessions.