In short
A conventional loan is a mortgage that isn't insured or guaranteed by a government program like FHA, VA or USDA. It's often a good fit for buyers with steady income and a solid credit history who want flexible down payment options and mortgage insurance that can come off once they build enough equity.
Reviewed by Jordan Carpenter, NMLS #2001895 · Last updated October 23, 2026
What is a conventional loan, and is it right for me?
A conventional loan is a mortgage that isn't insured or guaranteed by a government program like FHA, VA or USDA. Most follow guidelines set by Fannie Mae and Freddie Mac, two companies that buy home loans from lenders and keep the market running. Conventional tends to fit buyers with steady income, manageable debt and a solid credit history. Two big perks: qualified buyers can put down as little as 3%, and the private mortgage insurance (PMI, extra coverage the lender requires when you put down less than 20%) can be removed once you build enough equity. Because I'm a broker, I can compare conventional options from many wholesale lenders, and line them up against FHA or VA, so you can see which one actually fits your budget and your plans.
Key takeaways
If you have steady income, a decent credit history and some savings, a conventional loan is often worth a close look. It is also one of the most common questions I get from first-time buyers in Mesa, AZ: "Don't I need 20% down for that?" Usually, no. Below I'll walk you through how conventional loans work in plain English, where they shine, where another program might fit better, and how my dad Jay and I help you decide using your own numbers instead of headlines.
What Is a Conventional Loan?
A conventional loan is a mortgage that isn't backed by a government agency. Most conventional loans follow the rules set by Fannie Mae and Freddie Mac, which is why you'll sometimes hear them called "conforming" loans. Since there's no government insurance behind them, lenders look closely at your credit history, income, debts and down payment.
That sounds intimidating, but it really just means your full picture matters. If you have a good career and steady income but feel stuck, conventional may be closer within reach than you think. Know your numbers first, and the right path usually gets a lot clearer.
How Much Do You Really Need to Put Down?
One of the biggest myths I hear in Mesa, AZ is that conventional loans require 20% down. They don't. Qualified buyers, especially first-time buyers, can put down as little as 3%. Plenty of people put down 5%, 10% or 15%, and each amount changes your monthly payment and your mortgage insurance a little differently.
The trade-off to understand: when you put down less than 20%, you'll pay private mortgage insurance (PMI). PMI protects the lender, not you, but it's what lets you buy with less saved. The good news is that on a conventional loan, it doesn't have to last forever.
PMI Can Come Off
This is where conventional often pulls ahead of FHA. Once you reach about 20% equity in your home (the share you own outright, built through payments, rising value or both), you can generally ask to have PMI removed. It's typically set to drop off automatically at about 22% equity based on your original payment schedule.
FHA loans, by comparison, usually keep their mortgage insurance for the life of the loan if you put down less than 10%. Over years of payments, that difference can matter. I'll lay both options side by side so you can see the long-term picture before you choose.
Conventional vs. FHA: A Side-by-Side Look
| Feature | Conventional Loan | FHA Loan |
|---|---|---|
| Backing | Follows Fannie Mae / Freddie Mac guidelines | Insured by the FHA (government) |
| Minimum down payment | As little as 3% for qualified buyers | Around 3.5% |
| Credit guidelines | Generally looks for a stronger credit history | More flexible credit guidelines |
| Mortgage insurance | PMI, removable at about 20% equity | Often stays for the life of the loan |
| Property types | Primary, second home or investment | Primary residence only |
| Often a good fit for | Steady-income buyers with solid credit | Buyers rebuilding credit or with thinner files |
Neither one is "better" for everyone. The right choice depends on your credit, your savings and how long you plan to stay in the home. Clarity beats confidence here: once we compare them with your real figures, the answer is usually obvious.
Conforming Loan Limits
Conventional loans that stay under a certain size are called conforming loans. The Federal Housing Finance Agency (FHFA) updates these limits each year, and they can vary by county. If the loan amount you need goes above the limit, you'd move into a jumbo loan, which has its own guidelines. I'll confirm the current limit for your county and price range so there are no surprises later.
What About Interest Rates?
You can choose a fixed-rate conventional loan, where the rate stays the same for the whole term, or an adjustable-rate mortgage (ARM), where it can change after an initial period. Which rate you'd get isn't something a web page can tell you honestly. Your rate depends on your scenario and the day's market. Reach out and I'll price it for real.
How My Dad Jay and I Help
A bank can only offer its own loans. As a mortgage broker, I shop your scenario with many wholesale lenders to find the terms and fit that work for you. My dad Jay has been in this business for over 40 years, and between our team we bring more than 45 years of mortgage experience to every file.
We also won't push you to your maximum approval. Our focus is a comfortable payment, not max approval, so you still have room to travel, handle a surprise bill and actually enjoy the home. Whether you're buying your first place, moving up or adding an investment property, let's run your real numbers and see where you stand.
All down payment percentages, equity thresholds and loan limits mentioned on this page are illustrative and for general education only. This is not an offer to lend, a rate quote or a guarantee of approval or terms. Actual programs, eligibility, mortgage insurance and conforming limits vary by borrower, property, county, lender and current guidelines. Contact me for details specific to your situation.
Quick facts
- Loan type
- Not government-insured (conforming)
- Credit guidelines
- Depends on the lender and program
- Typical minimum down payment
- As low as 3% for qualified buyers
- Mortgage insurance
- PMI under 20% down; removable at about 20% equity
- Occupancy
- Primary, second home or investment
- Loan limits
- Conforming limits update yearly; ask me for current figures
Is this loan right for you?
Who it's for
- Buyers with steady income and a solid credit history
- First-time buyers who can put down as little as 3% and want PMI that can be removed later
- Move-up buyers, second-home buyers and many investors
- Anyone who wants to compare options from many lenders before choosing
Who it may not fit
- Buyers rebuilding their credit or with recent credit issues (FHA's more flexible guidelines may fit better)
- Eligible veterans or rural buyers who may qualify for zero-down VA or USDA options
- Buyers with very high debt compared to income who need more flexible underwriting
Pros and cons
Pros
- Down payments can start as low as 3% for qualified buyers
- PMI can generally be removed at about 20% equity, unlike most FHA loans
- Works for primary homes, second homes and investment properties
- Available from many wholesale lenders, so there's room to shop for the right terms and fit
Trade-offs to weigh
- Credit guidelines are generally stricter than FHA
- PMI applies until you reach the equity threshold when you put less than 20% down
Frequently asked questions
Do I really only need 3% down for a conventional loan?
For qualified buyers, often yes, especially first-time buyers. Just know that putting down less than 20% means paying private mortgage insurance until you build roughly 20% equity. I can show you how 3%, 5%, 10% or 20% down changes your monthly payment so you can pick what feels comfortable.
How is a conventional loan different from an FHA loan?
Conventional loans follow Fannie Mae and Freddie Mac guidelines and generally look for a stronger credit history. FHA loans are government-insured and have more flexible credit guidelines. The biggest everyday difference is mortgage insurance: conventional PMI can usually come off at about 20% equity, while FHA insurance often stays for the life of the loan. I'm happy to compare both for your situation.
When can I get rid of PMI on a conventional loan?
You can generally request PMI removal once you reach about 20% equity through your payments, a rise in your home's value or both. It's typically set to drop off automatically at about 22% equity based on your original payment schedule. Lender requirements for early removal can vary, so I'll explain exactly how it works on your loan.
What credit score do I need for a conventional loan?
There isn't one universal number. Credit requirements depend on the lender and the program, and your score is only part of the picture alongside income, debts and down payment. Because I work with many wholesale lenders, I can look at your full profile and give you a straight answer about where you stand, plus simple steps to improve if needed.
What are conforming loan limits?
Conforming limits are the maximum loan sizes that Fannie Mae and Freddie Mac will buy. The Federal Housing Finance Agency updates them each year, and they can vary by county. If your loan is larger than the limit, it becomes a jumbo loan with different guidelines. I'll confirm the current limit for your county.
Can I use a conventional loan for an investment property or second home?
Yes. Government-backed programs are generally limited to homes you live in, so conventional financing is often the main option for second homes and rentals. Down payment and qualification requirements are usually higher for these purchases. If you're an investor who doesn't fit a big bank's box, I can also walk you through other options, like DSCR loans.
Should I wait for the market to cool before buying?
That's one of the most common things I hear, and I understand it. There's no perfect time to buy, only your time. Timing your life around headlines adds stress, not savings. What helps is knowing your numbers: what payment feels comfortable, what you'd need to save and what your options look like today. Action creates clarity, and a quick conversation costs you nothing.
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Last updated October 23, 2026 · Reviewed by Jordan Carpenter, NMLS #2001895. This page is educational and not a commitment to lend; program details change — ask for current figures.