What is a Conventional Loan?
Conventional loans are what most people think of when they envision a mortgage. They’re available through the majority of lenders in the U.S. — including banks, credit unions, savings and loan institutions and online mortgage companies — and are not backed or guaranteed in any way by the government. The lender bears all the risk of the debt. Conventional loans can come with a fixed or adjustable interest rate, and they have a set loan term, typically 15 or 30 years.
Homebuyers seeking a conventional loan typically enjoy the largest selection of loan options at the most competitive rates. Since risks and guidelines are well-defined, conventional loans are popular with both mortgage lenders and homebuyers. Most lenders will offer several Fannie Mae and Freddie Mac programs tailored to different homebuyer situations, which means you can shop for the most competitive rates and terms to maximize how much you can get from a conventional loan.
Conventional Loan Rates, Explained:
Conventional loan rates come in two main types:
Fixed-rate: With a fixed-rate mortgage, your interest rate never changes; you’ll have the same monthly principal and interest payment for the length of the loan.
Adjustable-rate: With an adjustable-rate mortgage, you’ll have a fixed introductory rate, after which the rate changes at preset intervals based on an index rate plus a margin determined by the lender.
Since October 2024, conventional mortgage rates haven’t strayed too far from the high 6s to 7 percent range. They dropped briefly due to the economic changes in April 2025 and again in June 2025. Generally, mortgage rates tend to retreat in times of economic uncertainty.
FHA Loans vs. Conventional Loans: What’s the Difference?
As the name indicates, FHA loans are insured by the Federal Housing Administration and issued by approved lenders. Because the FHA backs up the loans, the lenders can extend lower interest rates. FHA mortgages generally are easier to qualify for, too, making them appealing to buyers with low to moderate income (although they are not limited to such borrowers). Conventional loans originate with private lenders, such as banks and credit unions. These lenders usually demand larger down payments and better credit scores from clients.
Let’s compare the key differences:
| FHA loans | Conventional conforming loans | |
| Credit score minimum | 580 (with 3.5% down) or 500 (with 10% down) | 620 |
| Maximum debt-to-income (DTI) ratio | Usually 43%, but can be up to 50% or more with compensating factors like a large savings account balance | Usually 45%, but can be up to 50% in some cases |
| Down payment minimum | 3.5% (with a 580 credit score) or 10% (with a 500 credit score) | 3% for fixed-rate loans or 5% for adjustable-rate loans |
| Loan limits | $524,225 in most areas | $806,500 in most areas |
| Mortgage insurance | Mortgage insurance premiums (MIPs) required on all loans | Private mortgage insurance (PMI) required on loans with less than 20% down; removable |
Conclusion:
While they have many similarities, their differences also make them better fits for different types of borrowers. To be approved for any type of mortgage, you’ll need to meet the lender’s credit and financial requirements. If you have excellent or good credit, a conventional loan is often the better choice. For buyers who have the ability to make a 20 percent down payment, there’s far less benefit in seeking an FHA mortgage, unless they’re not able to qualify for a conventional mortgage because of credit issues.
FHA loans tend to have more flexible requirements than conventional loans, and they’re geared toward homebuyers with lower credit scores.If your credit score is below 620, a loan backed by the FHA might be your only option. It might also be a better deal if you can’t manage a 20 percent down payment, which is harder and harder with today’s high home prices. When it comes down to choosing one, the best fit largely depends on you and your financial profile. You’ll want to get quotes from lenders before you make a decision.
