In short
A conventional loan is a mortgage not insured by a government agency, usually following Fannie Mae and Freddie Mac guidelines. Qualified buyers may put as little as about 3% down, and PMI can typically be removed once enough equity is built. It's often a fit for buyers with solid credit and stable income, and it can finance primary homes, second homes, and investment properties.
Reviewed by Kelham and Dave Brown, NMLS #1824866 Kelham | 314516 Dave · Last updated October 19, 2026
What is a conventional loan and how does it work?
A conventional loan is a mortgage that isn't insured or backed by a government agency like the FHA, VA, or USDA. Most follow guidelines set by Fannie Mae and Freddie Mac. For qualified buyers, down payments can start around 3%, and if you put down less than 20% you'll typically pay private mortgage insurance (PMI), which can usually be removed once you build enough equity. Conventional loans can be used for primary residences, second homes, and investment properties. Your eligibility and terms depend on your credit, income, assets, and the property.
Key takeaways
Conventional loans are the most common type of mortgage, and for good reason: they're flexible in property type, down payment, and loan term. That flexibility also means there are more decisions to make. At Brown Mortgage Group, we walk you through each one, from how much to put down to whether mortgage insurance makes sense, so you understand your options and move forward with confidence.
What Makes a Loan "Conventional"
A conventional loan is any mortgage that isn't backed by a government program. Most are "conforming" loans, meaning they follow guidelines set by Fannie Mae and Freddie Mac and stay within the conforming loan limit, which is updated periodically. Loans above that limit are called jumbo loans and have their own guidelines.
Because no government agency insures them, conventional loans tend to place more weight on credit history, income stability, and assets. In return, they offer a lot of flexibility in how you structure the loan.
Down Payment Options
One of the biggest misconceptions we hear is that conventional loans require 20% down. They don't. Here's how down payment generally works:
- About 3% down may be possible for qualified buyers, often first-time buyers or those who meet certain program guidelines.
- 5% to 19% down is common and typically requires private mortgage insurance.
- 20% or more down usually means no PMI and a smaller loan balance.
Second homes and investment properties typically require larger down payments than a primary residence. We'll show you how different down payment amounts change your monthly payment and your cash to close, so you can decide how much to keep in savings versus put into the home.
How Private Mortgage Insurance Works
PMI protects the lender when you put less than 20% down. It's a real cost, but with conventional loans it's usually not permanent. PMI can typically be removed once your loan balance reaches a certain percentage of the home's original value, either through regular payments or by requesting removal when you've built enough equity. The cost of PMI depends on factors like your credit and down payment, so we'll price it for your actual scenario.
Choosing a Loan Term and Structure
Conventional loans come in several structures, and each has trade-offs:
- 30-year fixed-rate: a stable principal-and-interest payment over a longer term, which keeps the monthly payment more manageable.
- 15-year fixed-rate: a larger monthly payment, but you pay the loan off faster and typically pay less interest over the life of the loan.
- Adjustable-rate (ARM): a fixed period at the start, after which the rate can adjust based on the market. This can make sense for some buyers who expect to move or refinance, but it carries the risk of a higher payment later.
We'll walk through how each structure fits your goals and how long you plan to stay in the home. Your rate depends on your scenario and the day's market. Reach out and we'll price it for real.
What Lenders Look At
Qualifying for a conventional loan generally comes down to four areas: credit history, income and employment, debt-to-income ratio (the portion of your monthly income going toward debt payments), and assets for the down payment, closing costs, and reserves. Credit minimums vary by program and lender, and your credit also affects your pricing and PMI cost. We'll review everything with you and tell you where you stand.
Primary Homes, Second Homes, and Investments
Conventional financing is one of the few loan types that can be used for all three. Whether you're buying your first home in Frisco, TX, a getaway property, or a rental, the guidelines differ by occupancy, so it's important to set it up correctly from the start. If you're relocating, as our own family once did when we moved from Indiana to Dallas, we can also help you think through timing between selling one home and buying the next.
How We Help
- Understand your goals, including how long you plan to stay and what payment feels comfortable.
- Compare structures like 30-year, 15-year, and adjustable-rate options side by side.
- Model down payment and PMI scenarios so you can see the trade-offs.
- Shop your scenario across a wide network of lenders, which lets us compare options for your situation.
- Communicate clearly from pre-approval through closing.
All loan scenarios and figures on this page are illustrative examples only, are not an offer or commitment to lend, and do not reflect current interest rates or guaranteed terms. Program availability, eligibility requirements, and limits vary and are subject to change. Contact our team for current details specific to your situation.
Quick facts
- Loan type
- Not government-insured (conforming)
- Credit minimums
- Vary by program and lender; we'll tell you where you stand
- Typical minimum down payment
- As low as about 3% for qualified buyers
- Mortgage insurance
- PMI under 20% down; usually removable as equity builds
- Occupancy
- Primary, second home, or investment
- Loan limits
- Conforming limits are updated periodically; ask for current figures
Is this loan right for you?
Who it's for
- Buyers with established credit and stable, documented income
- Buyers who want the option to remove mortgage insurance as they build equity
- Buyers purchasing a second home or investment property
- Buyers who want flexibility in term and structure, such as 15-year, 30-year, or adjustable-rate
- Move-up and relocating buyers with equity or savings to put toward the purchase
Who it may not fit
- Buyers whose credit or debt-to-income ratio fits FHA guidelines more comfortably
- Eligible veterans who may benefit from a VA loan's zero-down option
- Buyers whose loan amount exceeds the conforming limit, who may need a jumbo loan
- Self-employed borrowers whose tax returns don't reflect their true income, who may want to explore bank-statement options
Pros and cons
Pros
- As little as about 3% down for qualified buyers
- PMI can usually be removed once you build enough equity
- Available for primary homes, second homes, and investment properties
- Wide choice of terms and fixed or adjustable structures
- No upfront government mortgage insurance premium
Trade-offs to weigh
- Credit and debt-to-income guidelines can be stricter than government programs
- PMI applies with less than 20% down
- Higher down payments typically required for second homes and investments
- Loan amount must stay within the conforming limit
Frequently asked questions
Do I need 20% down for a conventional loan?
No. Qualified buyers may be able to put down as little as about 3%. Putting less than 20% down typically means paying private mortgage insurance, which can usually be removed later. We'll show you how different down payment amounts affect your payment and cash to close.
What credit score do I need for a conventional loan?
Minimums vary by program and lender. Your credit also affects your pricing and the cost of PMI, so even small improvements can matter. We'll review your credit, tell you where you stand, and explain any steps that might help.
How do I get rid of PMI?
PMI on a conventional loan can typically be removed once your loan balance drops to a certain percentage of the home's original value, either through regular payments or by requesting removal once you've built enough equity. Specific requirements apply, and we'll explain how they work for your loan.
Can I use a conventional loan for a second home or rental property?
Yes. Conventional loans can be used for primary residences, second homes, and investment properties. Down payment and reserve requirements are typically higher for second homes and investments, and the occupancy must be set up correctly from the start.
Should I choose a fixed-rate or adjustable-rate loan?
It depends on how long you plan to keep the loan and how comfortable you are with a payment that could change. Fixed-rate loans keep principal and interest steady. Adjustable-rate loans start with a fixed period and can adjust afterward. We'll walk through both for your situation.
What is the conforming loan limit?
It's the maximum loan amount that can follow standard Fannie Mae and Freddie Mac guidelines, and it's updated periodically. Loans above the limit are jumbo loans with different guidelines. We'll confirm the current limit for your purchase.
Related loan programs
Brown Mortgage Group walks first-time buyers through every step, so you understand your options, know what you can afford, and move forward with confidence.
Government-insured financing with a lower down payment path and flexible guidelines for buyers who qualify. Brown Mortgage Group helps you see if it fits.
Clear answers on eligibility, the funding fee and what a VA loan can do for you, from a father-and-son team that knows what it means to move a family.
Last updated October 19, 2026 · Reviewed by Kelham and Dave Brown, NMLS #1824866 Kelham | 314516 Dave. This page is educational and not a commitment to lend; program details change — ask for current figures.