A conventional loan is the most common type of mortgage in America, and for buyers with solid credit, it's often the smartest option. But "conventional" comes with its own rules on down payment, credit, loan limits, and how strictly your history gets judged. Here's what you actually need to know.
What "conventional" really means
A conventional loan is any mortgage that isn't backed by a government program like FHA, VA, or USDA. Instead, most conventional loans follow guidelines set by Fannie Mae and Freddie Mac, the two entities that keep the mortgage market running. Because they're not government-insured, conventional loans lean more on your financial strength: your credit, your down payment, and your track record.
The down payment: as low as 3% for first-time buyers
The biggest myth in homebuying is that conventional means 20% down. It doesn't. First-time buyers can put down as little as 3% on a conventional loan. Repeat buyers typically start at 5%.
You don't need 20% to buy, you only need 20% to avoid PMI (private mortgage insurance). Below that, PMI is added to your payment until you build enough equity, and here's where your credit score matters a lot.
Credit score: 620 to qualify, 680+ to make it worthwhile
The minimum credit score for a conventional loan is 620. But qualifying and getting a good deal are two different things, and this is the part most buyers aren't told.
On a conventional loan, PMI is priced by your credit score. The lower your score, the more expensive the PMI. If your score is under 680, that PMI can get high enough that a conventional loan may not be the smart move at all, an FHA loan (where mortgage insurance is the same regardless of score) can actually cost you less.
The 680 line
Think of 680 as the real threshold where conventional starts to shine. Above it, PMI is reasonable and cancellable. Below it, the PMI penalty grows fast, and it's often worth comparing against FHA before you commit. The 620 minimum gets you in the door; 680+ is where the math tends to work in your favor.
The good news: unlike FHA's mortgage insurance, conventional PMI is temporary. Once you reach about 20% equity, you can request to have it removed, and it drops off automatically at 22%. So a strong-credit buyer gets a lower down payment and an insurance cost that eventually disappears.
Loan limits change by county
There's a cap on how much you can borrow with a standard "conforming" conventional loan, but it's not one national number. The limit is set county by county, based on local home prices. In most areas it's the baseline conforming limit; in expensive markets it's substantially higher.
Borrow above your county's limit and you move into jumbo loan territory, which has stricter requirements. This is exactly why "how much can I borrow conventionally?" always depends on where you're buying, a number that works in one county may be over the limit in the next one over.
Conventional is less forgiving of late payments
This is a key difference from FHA. Conventional loans hold a higher standard for your payment history, recent late payments, collections, or a thin track record hurt you more here than they would on a government-backed loan. FHA was built to be more flexible for buyers rebuilding credit; conventional rewards a clean, consistent history. If you've had recent hiccups, that alone can push conventional out of reach even with a 620+ score.
So who is a conventional loan best for?
- Strong-credit buyers (680+) who want low PMI that eventually cancels.
- First-time buyers who qualify for the 3%-down option and have a clean payment history.
- Buyers who plan to build equity and shed mortgage insurance rather than carry it for the life of the loan.
- Anyone buying under their county's conforming limit who wants to avoid FHA's permanent insurance.
Conventional vs. FHA, in one line
Great credit, clean history? Conventional usually wins, lower, cancellable PMI.
Score under 680 or recent late payments? FHA is often the cheaper, more forgiving path, at least until you can refinance into conventional later.
The bottom line
A conventional loan can be an excellent deal, 3% down for first-time buyers, a 620 minimum score, and PMI that disappears once you build equity. But it rewards financial strength: under 680, the PMI can outweigh the benefits, the loan limit depends on your county, and your payment history is judged more strictly than on FHA. The right call comes down to your exact numbers, which is a conversation worth having before you assume conventional (or 20% down) is your only path.
Conventional or FHA, which fits you?
Let's compare both against your real credit, down payment, and county limit, so you land on the loan that actually costs you the least.