What Is a Conventional Loan? A Deep Dive for Homebuyers

When you're exploring mortgage options, one of the first terms you'll hear is conventional loan. But what exactly does that mean—and is it the right fit for your home financing journey?

Let’s break it down in plain language, with just enough detail to help you make informed decisions.

What Is a Conventional Loan?

A conventional loan is a type of mortgage that’s not backed by a government agency like the FHA (Federal Housing Administration), VA (Department of Veterans Affairs), or USDA (U.S. Department of Agriculture). Instead, it's offered by private lenders—think banks, credit unions, and mortgage companies like Ruoff Mortgage!

Because there’s no government guarantee, the lender takes on more risk. That’s why conventional loans typically require stronger credit, more stable income, and often a higher down payment than government-backed options.

But with that comes more flexibility—and for many borrowers, that’s a win.

Who Might Consider a Conventional Loan?

Conventional loans are a popular choice for homebuyers with:

• Good to excellent credit
• Reliable income and job history
• Low debt-to-income (DTI) ratios
• Savings for a down payment

If this sounds like your financial profile, a conventional loan may offer a smoother path—especially if you want to avoid certain restrictions that come with government loans (like property type or location limits).

Also, if you’re planning to buy a second home or investment property, conventional loans are often the go-to route. Government loans typically can’t be used for those.

Key Features of Conventional Loans

Here are a few characteristics that set conventional loans apart:

1. Conforming vs. Non-Conforming

Many conventional loans are considered conforming, meaning they meet the guidelines set by Fannie Mae and Freddie Mac—two government-sponsored enterprises that buy and package loans on the secondary market.

There’s a loan limit for conforming loans (updated annually). Loans above that amount are called jumbo loans, which still fall under the conventional loan umbrella but come with different rules.

2. Private Mortgage Insurance (PMI)

If you put down less than 20%, your lender will likely require private mortgage insurance (PMI)—an added monthly cost that protects the lender in case of default.

But here’s the good news: with a conventional loan, PMI doesn’t last forever. Once you’ve built enough equity (typically 20%), you can request to have it removed.

3. Flexible Use

You can use a conventional loan for: 

• Primary residences
• Second homes
• Investment properties
• Condos and townhomes
• Single-family homes and more

This flexibility makes conventional loans a solid option for buyers with diverse goals.

Pros and Cons of Conventional Loans

Let’s keep it real—no loan is one-size-fits-all. Here’s where conventional loans shine, and where they might not.

Pros

• No upfront mortgage insurance (unlike FHA)
• PMI can be removed once equity reaches 20%
• Competitive options for borrowers with strong credit
• Use for a wider range of properties

Cons

• Stricter qualification standards
• Higher down payment often required
• PMI if you put down less than 20%
• Not ideal for lower-credit borrowers

 Is a Conventional Loan Right for You?

Here’s the thing—it's not just about credit scores or down payments. It’s about how the loan fits into your larger financial picture.

I’ve worked with buyers who were convinced they needed a government-backed loan, only to find out a conventional option gave them more control and fewer long-term costs. I’ve also seen folks surprised to learn they could qualify for a conventional loan, even with a modest down payment.

The only way to know for sure? Talk with a loan expert—like a Ruoff loan officer— to run the numbers and explore your options side by side.

Final Thoughts

A conventional loan is just that—conventional. It’s common, well-established, and often a great fit for borrowers with solid financial footing.

But every buyer’s story is different. Whether you’re buying your first home, investing in a rental, or upgrading your current space, it’s worth taking the time to understand how a conventional loan works—and if it’s your best path forward.

Thinking about buying or refinancing? Connect with a Ruoff loan officer and explore your loan options together. No pressure—just clear answers.

About Ruoff Mortgage

At Ruoff Mortgage, we understand that buying a home is one of life’s biggest moments – not just as a financial decision, but a personal one. For more than 41 years, we’ve proudly helped families turn their dreams into reality. From our roots in northeast Indiana to now serving homebuyers throughout the Midwest, our focus has stayed the same: delivering exceptional service rooted in care, speed, and community. With an average 15-day clear-to-close time, our team is here to make your journey to homeownership as smooth and stress-free as possible. When you're ready to take the next step, we’re here to walk with you, every step of the way.