What Is a Conventional Loan?

A conventional loan is the plain-vanilla mortgage. No government insurance. Fannie Mae or Freddie Mac rules. It’s the loan most people picture when they picture a mortgage — and for a first-time buyer with decent credit and some cash saved, it’s usually the cheapest loan over time.

Here’s the short version: 3% down minimum, 620+ credit typical, and the mortgage insurance drops off. That last part is the whole reason to care about conventional.

Conventional loans make up 70–80% of all purchase mortgages in the United States. A conventional loan is any mortgage that isn’t insured or guaranteed by the government — not FHA, not VA, not USDA. It’s issued by a private lender, and because there’s no government backing, the requirements are stricter than on a government loan.

Conforming vs non-conforming

Most conventional loans are conforming — they follow the guidelines set by Fannie Mae and Freddie Mac, the two government-sponsored entities that buy and securitize mortgages. Conforming loans tend to have lower interest rates than non-conforming ones, because Fannie and Freddie guarantee they’ll make good on the loan even if the borrower defaults.

If your loan doesn’t meet those guidelines, it’s non-conforming. The most common type is a jumbo loan — a loan that exceeds the maximum conforming amount, usually because the home’s value is above the limit. Jumbos come with stricter qualifying criteria: larger down payments (5–30% or more) and higher credit score requirements (660–700+), though that isn’t always the case. An Agency Jumbo loan has more flexible guidelines and only requires a minimum 620 credit score, and you may be able to put down less than 20% — but each agency still sets county maximums.

The requirements (2026, California)

Conforming loans come as fixed-rate loans with 10- to 30-year terms, or adjustable-rate mortgages with low starter rates. And on PMI: if you do have to pay it, it’s usually rolled into your monthly payment, though some loans charge it as an upfront premium at closing instead.

Two honest notes. First, 620 is the floor, not the sweet spot. A 620-credit buyer gets approved, but the rate and the PMI price are both worse than at 700. Don’t quote a conventional payment for a 620-credit buyer using a top-tier rate — the rate in this post is the Freddie Mac average for strong borrowers. Second, the conforming limit matters: above $832,750 in most counties (up to $1,249,125 in high-cost counties like LA and Orange), you’re in jumbo territory, and the rules change.

What it actually costs per month — $700,000 house

Assumptions, stated plainly so you can check me: conventional 30-year fixed at 7.18% (Freddie Mac Primary Mortgage Market Survey, week ending November 5, 2026). Property tax 1.25% of price per year. Homeowners insurance ~0.5% of value per year. PMI shown at a 0.5% annual planning figure — your actual PMI depends on your credit score and down payment. No HOA, no other debts. Closing costs are on top of the down payment and are not in these numbers.

10% down — the most common first-timer scenario

Income needed at 36% debt-to-income, no other debts: about $185,000/year.

3% down — the lowest cash way in on conventional

Same $21,000 cash as FHA’s 3.5% down on a $600,000 house — but on a $700,000 house, conventional at 3% down costs more per month than FHA, because the rate is higher (7.18% vs 6.94%). The difference is the PMI drops off later and there’s no 1.75% upfront fee financed into the loan.

20% down — no PMI at all

Twenty percent down saves $737 a month versus 10% down — mostly because the loan is smaller and there’s no PMI. But it takes twice the cash. For most first-time buyers, that’s the real trade: the income to carry the payment is achievable, the cash for the down payment is the hard part.

The PMI advantage — and how to use it

This is the one thing that makes conventional worth stretching for. PMI rules, plain English:

• You can ask to drop PMI at 80% loan-to-value. You pay down the loan (or the home appreciates), you hit 20% equity, you request cancellation.
• It drops off automatically at 78% if you’re current on payments.
• FHA’s mortgage insurance doesn’t do this. On most FHA loans at 3.5% down, the annual MIP stays for the life of the loan. The only way out is refinancing.

So the conventional play is: get in with 3% or 10% down, pay the PMI for a few years, and get it removed when you hit 20% equity. Every month after that, your payment drops by $262–$283 on a $700,000 house. That’s the long game, and it’s worth real money.

Conventional vs FHA — same $700,000 house

*FHA salary figure uses the 6.94% FHA math at 43% DTI of $164,100/year; at 36% DTI the same payment needs about $196,000/year. All salary figures assume no other debts.

Read the table this way: FHA gets you in with less cash and looser credit. Conventional costs less over time if your credit is strong enough. If cash is your constraint, FHA wins. If income is your constraint, conventional wins. Know which constraint is yours.

Who conventional is for — and who it isn’t

Conventional is for you if: your credit is 680+, you have 10–20% saved, or you want the PMI to disappear without refinancing.

Conventional is probably not for you if: your credit is under 620, your cash is tight and you need the lowest down payment, or you’re a veteran — VA beats both of these loans. See What Is a VA Loan?

Dat’s take

FHA gets you in the door. Conventional is the loan that gets cheaper the longer you own the house — because the PMI actually goes away.

What to do with this

1. Check your credit score honestly — 620 gets you in, 680+ gets you priced well, 740+ gets you the best deal.
2. Run the payment on your price in the Mortgage Payment Calculator.
3. Compare it against What Is an FHA Loan? and How Much Do I Need to Make to Afford a $700,000 House in California? for the income side.
4. Then start your pre-approval and I’ll run your numbers both ways and tell you which loan is actually cheaper for you.

Rates and limits verified November 8, 2026: conventional rate 7.18% (Freddie Mac Primary Mortgage Market Survey, week ending November 5, 2026); FHA rate 6.94% (national average, November 6, 2026); conforming limit $832,750 baseline, $1,249,125 high-cost ceiling (FHFA 2026). PMI 0.5%/yr is a planning figure only — your actual PMI depends on your credit score and down payment. Property tax 1.25% and insurance ~0.5%/yr are the site’s standard assumptions — your county and your quote will differ. No HOA or closing costs included. This is education, not a rate quote or a loan approval. Dat Nguyen, Certified Mortgage Advisor, NMLS 1379110, Everyday Lending Group.