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Conventional Loans Explained: How They Work and Who They Fit

A conventional loan is any mortgage that isn’t insured or guaranteed by a government agency like the FHA, VA or USDA. It’s the most common way Americans finance a home, and for buyers with steady income and solid credit it’s often the most flexible. Here’s how conventional loans work and how to tell whether one fits you.

Reviewed by Patriot Home Mortgage compliance, October 2026 · 3 min read

What makes a loan “conventional”

Government-backed loans come with a federal guarantee or insurance that protects the lender. Conventional loans don’t. Instead, most of them follow the standards set by Fannie Mae and Freddie Mac, two companies that buy mortgages from lenders so that lenders have money to make new loans.

Fannie Mae and Freddie Mac are government-sponsored, but a conventional loan itself isn’t government-backed. That’s an older misunderstanding worth clearing up: if you stop paying, no federal agency repays the lender.

Conforming and jumbo loans

Conventional loans fall into two groups:

  • Conforming loans meet Fannie Mae and Freddie Mac’s standards, including a maximum loan amount called the conforming loan limit.
  • Jumbo loans are larger than that limit. They follow each lender’s own standards and usually ask more of the borrower. Our jumbo loan guide covers them.

The Federal Housing Finance Agency (FHFA) sets the conforming loan limit every year. It’s higher in high-cost counties and in Alaska, Hawaii, Guam and the U.S. Virgin Islands. You can look up the current limit for any county on FHFA’s conforming loan limit page.

Old figures still circulate. Some websites quote conforming limits from years ago. Limits rise most years with home prices, so check FHFA’s page for this year’s number in your county.

Down payment

A common myth says conventional loans need 20% down. They don’t. Some first-time buyers and buyers using certain Fannie Mae and Freddie Mac programs can put down as little as 3%. Twenty percent is simply the point where you no longer need mortgage insurance.

Mortgage insurance

With less than 20% down, a conventional loan adds private mortgage insurance (PMI). Unlike FHA mortgage insurance, PMI doesn’t last forever:

  • You can ask your lender to cancel it once your balance reaches 80% of the home’s original value.
  • It ends automatically when your balance is scheduled to reach 78%.

The CFPB explains the rules in What is private mortgage insurance?

What lenders look at

Conventional loans weigh your credit score more heavily than government-backed loans do. A stronger score can lower both your rate and your PMI cost. Lenders also look at:

  • Debt-to-income ratio, your monthly debts compared with your gross monthly income
  • Steady, documented income
  • Savings, for your down payment, closing costs and a cushion after closing
  • The property, through an appraisal that confirms its value and condition

What a conventional loan can buy

This is where conventional loans may offer more flexibility. Besides a primary residence, they can finance second homes and investment properties, which FHA, VA and USDA loans can’t.

Who a conventional loan fits

A conventional loan is often a strong choice if you:

  • Have good credit and steady income
  • Can put down 20% or more, or expect to reach 20% equity in a few years
  • Are buying a second home or a rental
  • Want mortgage insurance that goes away on its own

If your credit is still building or your down payment is small, compare it with an FHA loan. If you’ve served, a VA loan is usually worth pricing too.

The simplest way to decide is to compare. A loan officer can price a conventional loan next to the other options you qualify for, so you can see the monthly payment, cash to close and total cost side by side.

Talk to a Patriot loan officer

Every situation is different, and a short conversation is the quickest way to know what fits yours.

Find a loan officerSee where we lend

This article is general information, not an offer to lend or a commitment to lend. All loans are subject to credit approval, underwriting and property valuation. Belem Servicing LLC, NMLS ID #715386 (NMLS Consumer Access).

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