What is a Conventional Loan?

A conventional loan is any mortgage that isn’t backed by a government program like the FHA or VA. Instead, these loans are offered by private lenders—banks, credit unions, and mortgage companies like CapCenter.

Conventional loans typically follow the standards set by Fannie Mae and Freddie Mac, the government-sponsored enterprises that buy mortgages from lenders. This ensures consistency across the industry and makes it easier for lenders to provide competitive rates.

In other words, a conventional loan is the “standard” mortgage option—flexible, widely available, and designed for borrowers with solid credit and financial stability.

So what makes a loan “conventional”? It isn’t insured or backed by a government program. Within that definition, conventional loans fall into two main groups: conforming loans, which meet Fannie Mae and Freddie Mac requirements such as loan limits, credit, debt-to-income and documentation standards, and non-conforming loans, most often jumbo loans above the conforming limit. Both are conventional loans; they’re simply structured differently. We cover each type below.

Not all conventional loans are the same. Within this category, you’ll find options that can fit different borrower needs.

Conforming Loans

These loans meet the criteria set by Fannie Mae and Freddie Mac, including maximum loan amounts (the conforming loan limit). For 2026, the baseline limit is $832,750 for most areas, with higher limits in expensive housing markets.

Non-Conforming Loans (Jumbo Loans)

If you’re buying a high-priced home and need a loan amount above the conforming limit, you’ll be looking at a jumbo loan. These loans don’t meet Fannie Mae or Freddie Mac requirements and often require higher credit scores and larger down payments.

Fixed-Rate Conventional Loans

These offer stable monthly payments over the life of the loan. Popular terms include 15 and 30 years, making them a go-to choice for homeowners who want predictability.

Adjustable-Rate Mortgages (ARMs)

ARMs start with a lower introductory rate that adjusts over time based on market conditions. While they can be cost-saving in the short term, they come with the risk of future rate increases.

Conventional loans are known for their flexibility, but lenders do set certain requirements to manage risk. Here are the key factors:

• Credit Score: Generally, you’ll need at least a 620 to qualify. Higher scores may help you secure a lower interest rate.
• Down Payment: Many people think you need 20% down, but that’s not true. You can buy a home with as little as 3% down with certain conventional programs.
• Debt-to-Income Ratio (DTI): Lenders want to see your monthly debt compared to your income. A DTI below 43% is often required, though exceptions exist.
• Employment & Income Verification: Stable income history plays an important role in approval.

At CapCenter, we walk clients through these qualifications and help them find ways to strengthen their application. And remember, with our ZERO Closing Cost mortgage, you won’t need to bring thousands extra to the table just to cover fees—keeping more of your money available for your down payment.

There’s a reason conventional loans remain the most popular mortgage type. Here’s why many buyers choose them:

• Lower Costs Over Time: With a strong credit score, you’ll often qualify for lower interest rates compared to other loan programs.
• Flexible Terms: From 10-year to 30-year mortgages, conventional loans offer more choices.
• No Upfront Mortgage Insurance: Unlike FHA loans, which require both upfront and annual mortgage insurance, conventional loans only require private mortgage insurance (PMI) if you put less than 20% down—and PMI can be removed once you reach 20% equity.
• Flexibility in Property Type: Conventional loans can finance primary residences, second homes and investment properties, giving you more options than many government programs.
• Higher Loan Limits in Many Areas: Conforming loan limits adjust based on home prices, giving borrowers more flexibility in expensive markets.

While conventional loans are a strong option, they aren’t right for everyone. Some challenges include:

• Stricter Credit Standards: If your credit is less than ideal, FHA loans may be easier to qualify for.
• PMI Requirement with Low Down Payment: If you put less than 20% down, you’ll need PMI until you build enough equity.
• Higher Down Payment than Some Programs: VA and USDA loans allow zero down, while conventional usually requires at least 3%.

CapCenter helps clients weigh these tradeoffs. Sometimes an FHA or VA loan makes more sense depending on your situation, and we’ll guide you toward the product that benefits you most.

If you put down less than 20% on a conventional loan, PMI will likely be required. PMI protects the lender in case of default, but it doesn’t have to last forever. Once you’ve built up enough equity, you can ask your servicer to cancel it, and it generally ends on its own when your balance is scheduled to reach 78% of the home’s original value. That’s a significant difference from FHA loans, where mortgage insurance may stay in place for the life of the loan.

For many buyers, starting with a smaller down payment makes homeownership possible sooner, and PMI is simply a temporary step. Our loan consultants can show you how PMI affects your monthly payment and how to plan for its removal. See how to remove PMI.

To put things in perspective, let’s compare:

• FHA Loans: Easier credit and down payment requirements but come with lifelong mortgage insurance unless refinanced.
• VA Loans: Exclusive to veterans, active-duty service members, and eligible spouses. No down payment or PMI required.
• USDA Loans: Designed for buyers in eligible rural areas, and they also allow no down payment.

Conventional loans offer a balanced path: wider availability than VA or USDA, and potentially lower long-term costs than FHA—especially when you qualify to remove PMI.

Conventional loans aren’t just for purchases. They’re also a strong option for refinancing, whether you want to lower your interest rate, shorten your loan term or access equity through a cash-out refinance. If you have an FHA loan and at least 20% equity, refinancing to a conventional loan can also let you drop mortgage insurance.

With ZERO Closing Costs (restrictions apply), CapCenter covers typical lender and third-party closing costs, so you have less to earn back. You can explore your options with our refinance calculator and see how a new rate could change your monthly payment.

Most lenders charge thousands in closing costs, even on conventional loans. These fees—covering things like processing, underwriting, and origination—can eat into your savings fast.

At CapCenter, we’re different. We pioneered the ZERO Closing Cost mortgage, meaning you don’t have to budget extra for lender fees. This makes conventional loans even more affordable, whether you’re buying your first home or refinancing your current one.

Pair that with our in-house realty team, home search tools, and insurance services, and you’ve got a one-stop partner for your entire homeownership journey.

A conventional loan is often the best path to homeownership for borrowers with steady income and good credit. It’s flexible, widely available, and can save you money over time—especially if you’re able to avoid or eliminate PMI.

When paired with CapCenter’s ZERO Closing Cost mortgage, the benefits become even more powerful. You keep more of your money for your down payment, your monthly payments, or even your next big project in your new home.

If you’re ready to explore your conventional loan options, Contact CapCenter Today! We’ll walk you through every step and help you make a confident, cost-saving decision.