Quick Answer
A conventional loan is the most common type of mortgage. Unlike FHA, VA, or USDA loans, it isn't backed by the government — it's issued by a private lender following Fannie Mae and Freddie Mac guidelines. It often appeals to buyers with steady credit, and if you put down less than 20%, you'll usually pay private mortgage insurance until you build enough equity.
- Backed by
- Private lenders, not a government agency
- Follows
- Fannie Mae / Freddie Mac guidelines
- Typical down payment
- As low as 3% for some qualified buyers
- PMI
- Usually required under 20% down
- Two types
- Conforming and non-conforming (jumbo)
How a Conventional Loan Works
With a conventional loan, a private lender — a bank, credit union, or mortgage company — lends you money to buy a home, and you repay it with interest over a set term, commonly 15 or 30 years. Because there's no government insurance behind the loan, lenders look closely at your credit history, income, debt, and down payment.
Down payments can be lower than many buyers expect, sometimes as little as 3% for qualified borrowers. If you put down less than 20%, you'll typically carry PMI until your equity reaches the point where it can be removed.
Conforming vs. Jumbo Loans
Most conventional loans are "conforming," meaning they fall within the loan limits set each year for Fannie Mae and Freddie Mac. For higher-priced homes above that limit, you'd need a "jumbo" loan, which is non-conforming and usually comes with stricter requirements.
In most of Central Indiana, home prices keep the majority of buyers comfortably within conforming limits, though luxury purchases in areas like Carmel or Zionsville can push into jumbo territory.
Conventional vs. FHA and VA
FHA loans are government-insured and can be more forgiving on credit and down payment, but they carry their own mortgage insurance for the life of many loans. VA loans, for eligible veterans and service members, often require no down payment. A conventional loan can be attractive when your credit and savings are solid, because PMI can eventually come off and lower your long-term cost.
There's no single "best" loan — the right choice depends on your finances and goals. A local lender can compare options with you side by side.
Is a Conventional Loan Right for You?
If you have reliable income, a reasonable debt load, and some savings for a down payment, a conventional loan is often worth pricing out. Run the numbers with our mortgage calculator, and if you're new to the process, our first-time buyer resources walk through what to expect.
When you're ready, reach out and we'll connect you with trusted Central Indiana lenders who can compare loan types for your situation.
Questions About Your Situation?
We'll walk you through it in plain English — no pressure, no obligation.
Frequently Asked Questions — Conventional Loan
How much do I need to put down on a conventional loan?
It varies by lender and program, but qualified buyers can sometimes put down as little as 3%. Putting down 20% or more lets you avoid private mortgage insurance.
Can I remove PMI from a conventional loan?
Yes. Unlike some FHA mortgage insurance, conventional PMI can usually be cancelled once you've built enough equity in the home, which can lower your monthly payment over time.
Is a conventional loan better than an FHA loan?
Neither is automatically better. Conventional loans can cost less long term for buyers with strong credit, while FHA loans may be easier to qualify for. Compare both with a lender.