What is the minimum credit score for a conventional loan?

Most lenders require a minimum credit score of 620 for a conventional loan, but a higher score (typically 740 or above) can help you qualify for a lower interest rate and better terms.

Can I use a conventional loan to buy an investment property?

Yes, conventional loans can be used for primary residences, second homes, and investment properties. However, the down payment requirement and interest rate may be higher for investment properties compared to owner-occupied homes.

Is private mortgage insurance (PMI) required on a conventional loan?

PMI is generally required if your down payment is less than 20% of the home’s purchase price. Once you reach 20% equity in the home, you can request to cancel PMI, which can lower your monthly payment.

Conventional Loan Guide: What Is a Conventional Loan?

Reviewed by the LoanPolicies Editorial Team · Updated 2026-09-05

Learn what a conventional loan is, how it differs from government-backed loans, and what lenders look for in a borrower. A clear guide to help you compare options.

A conventional loan is a mortgage that is not insured or guaranteed by a federal government agency, such as the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA), or the U.S. Department of Agriculture (USDA). Instead, it is originated and funded by private lenders and typically must meet the underwriting guidelines set by Fannie Mae or Freddie Mac, the government-sponsored enterprises that buy most conventional loans on the secondary market. As a general rule, conventional loans require a higher credit score and a larger down payment than government-backed loans, but they often offer more flexibility in loan terms and may have lower overall costs for borrowers with strong financial profiles.

How a Conventional Loan Works

When you apply for a conventional loan, a lender evaluates your creditworthiness based on your credit score, debt-to-income ratio, employment history, and assets. The lender then sets an interest rate and loan term. Most conventional loans are either conforming (meeting Fannie Mae or Freddie Mac limits) or non-conforming (such as jumbo loans that exceed those limits). The loan term can range from 10 to 30 years, with fixed or adjustable interest rates. Your monthly payment will include principal, interest, taxes, and insurance (if applicable). As a general guideline, borrowers with a credit score of 620 or higher and a down payment of at least 3% may qualify, but lower scores or smaller down payments often require private mortgage insurance (PMI) until you build 20% equity in the home.

Key Requirements for Borrowers

Credit score: Most lenders prefer a minimum of 620, though a score of 740 or higher may qualify you for the best interest rates.
Down payment: As low as 3% for some fixed-rate conventional loans, but a 20% down payment eliminates the need for PMI.
Debt-to-income ratio (DTI): Typically capped at 43% to 50%, depending on the lender and compensating factors.
Loan limits: For a single-family home in most U.S. counties, the conforming loan limit is generally around $766,550 (as set by FHFA; this figure changes periodically).
Private mortgage insurance (PMI): Required if your down payment is less than 20%; PMI can be canceled once you reach 20% equity.

Conventional vs. Government-Backed Loans: Quick Comparison

Feature	Conventional Loan	FHA Loan
Down payment minimum	3%–5%	3.5%
Credit score minimum	620 (often higher for best rates)	580 (with 3.5% down)
Mortgage insurance	PMI (cancelable at 20% equity)	MIP (upfront + annual, usually for life of loan)
Loan limits	Conforming limits apply; jumbo available	Lower county-based limits
Property type	Primary, second home, or investment	Primary residence only

Advantages and Considerations

One major advantage of a conventional loan is the flexibility it offers. You can choose from a wide range of loan terms and interest rate types, and the loan is not tied to a government program, meaning fewer bureaucratic hurdles. For borrowers with strong credit and a solid down payment, conventional loans often have lower total interest costs over the life of the loan compared to FHA or USDA loans. On the other hand, if your credit score is below 620 or you cannot afford a 3% down payment, a conventional loan may be harder to obtain. Additionally, PMI can add to your monthly payment if you put down less than 20%. As a general rule, it is wise to compare loan estimates from multiple lenders to find the best APR and terms for your situation. Every borrower’s financial profile is unique, so consider speaking with a licensed loan partner to review your specific options.

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