What Is a Conventional Loan? A Plain-English Guide for Homebuyers

Conventional loans are the most common mortgage in the United States, and for good reason — they offer flexibility on down payment, loan amount, property type, and mortgage insurance removal that government-backed loans often do not. But they also have stricter credit and income requirements than FHA or VA options.

Here is everything Pennsylvania homebuyers need to know about conventional loans before they apply.

What Makes a Loan 'Conventional'

A conventional loan is any mortgage that is not backed by a federal government agency. Unlike FHA loans (backed by the Federal Housing Administration), VA loans (backed by the Department of Veterans Affairs), or USDA loans (backed by the Department of Agriculture), conventional loans are originated by private lenders and typically sold to Fannie Mae or Freddie Mac on the secondary market.

Because there is no government guarantee, lenders take on more risk — which is why conventional loans have stricter qualification standards. The tradeoff is more flexibility in terms of property type, loan structure, and long-term cost.

Conforming vs. Non-Conforming Conventional Loans

Conventional loans split into two categories based on loan size:

• Conforming loans fall within the loan limits set by Fannie Mae and Freddie Mac. For 2026, the conforming loan limit for most of Pennsylvania is $806,500 for a single-family home. These loans can be sold on the secondary market, which keeps rates competitive.
• Non-conforming loans (commonly called jumbo loans) exceed the conforming limit. They cannot be sold to Fannie or Freddie, so lenders hold them on their own books. This adds risk and typically raises rates.

For most buyers in Chester County, a conforming conventional loan covers the majority of purchase scenarios — median home prices in towns like West Chester and Malvern typically fall within conforming limits.

Qualification Requirements

Conventional loans have stricter baseline requirements than government-backed options:

• Credit score: 620 minimum for most lenders; rates improve significantly at 700+ and peak at 740+
• Down payment: as low as 3% for first-time buyers (HomeReady/Home Possible programs); 5% standard; 20% eliminates PMI
• Debt-to-income ratio (DTI): typically capped at 45–50% with strong compensating factors
• Employment: two years of stable employment history required; self-employed borrowers need two years of tax returns
• Property: must meet Fannie/Freddie appraisal standards; fewer property restrictions than FHA

Private Mortgage Insurance (PMI)

If you put less than 20% down on a conventional loan, you will pay private mortgage insurance (PMI). PMI protects the lender if you default — it does not protect you. Rates typically range from 0.5% to 1.5% of the loan amount annually, depending on your credit score and LTV.

The key advantage over FHA: PMI on a conventional loan cancels automatically when your loan balance reaches 80% of the original home value, and you can request removal at 80% LTV. FHA mortgage insurance is required for the life of the loan if you put less than 10% down — it never cancels. For borrowers with a credit score above 700, conventional PMI is often cheaper than FHA MIP even at low down payments.

Conventional vs. Other Loan Types

The right loan depends on your specific profile:

• Conventional vs. FHA: If your credit score is above 700 and you have at least 5% down, conventional is usually better long-term due to PMI cancellation. Below 680, FHA may offer better terms.
• Conventional vs. VA: VA loans are almost always better for eligible veterans — no down payment, no PMI, competitive rates. Conventional makes sense for veterans who want to preserve VA entitlement or whose loan scenario does not fit VA guidelines.
• Conventional vs. USDA: USDA loans offer zero down for qualifying rural areas. For suburban Chester County buyers who do not qualify for USDA geography, conventional is the default.

Who Conventional Loans Work Best For

Conventional loans are typically the best fit for buyers who:

• Have a credit score of 700 or above
• Can put 5–20% down
• Are buying in a market where home prices fall within conforming limits
• Want PMI to cancel rather than pay government MIP for the life of the loan
• Are buying a second home or investment property (government-backed loans restrict these)

If you are buying your first home in Downingtown, Exton, or anywhere in Chester County and your credit profile is solid, conventional is likely your best path. A free quote from Zurn Mortgages shows you conventional pricing alongside other programs side by side so you can make an informed choice.