What Is a Conventional Loan in Real Estate?

A conventional loan is a type of mortgage that is not insured or guaranteed by the federal government. It’s offered by private lenders such as banks and credit unions, and it’s the most common financing method for homebuyers in the U.S.

✅ How a Conventional Loan Works

  • The buyer applies directly through a private lender for financing.
  • The loan typically requires a credit score of 620 or higher and a down payment of at least 3%–5%.
  • Private mortgage insurance (PMI) may apply until 20% equity is reached.
  • Loan terms can vary — the most common are 15-year and 30-year fixed-rate mortgages.

Conventional loans are often compared with standard mortgages and other financing types.

📊 Conventional vs. Government-Backed Loans

Unlike government-backed programs such as FHA, VA, or USDA loans, conventional mortgages receive no federal insurance. That means:

  • The lender assumes more risk if the borrower defaults.
  • Borrowers generally need stronger credit and financial stability.
  • Rates can be competitive for well-qualified buyers since lenders set their own terms.

If you’re comparing options, see how lender approval works in a loan commitment.

💡 Pros and Cons of a Conventional Loan

  • ✅ Pro: Flexible loan terms and competitive interest rates.
  • ✅ Pro: No upfront mortgage insurance premium like FHA loans.
  • ⚠️ Con: Higher credit and income requirements.
  • ⚠️ Con: May require larger down payment than government-backed loans.

🏡 How Conventional Loans Affect FSBO Sales

When selling For Sale By Owner (FSBO), most buyers will use conventional financing. Understanding loan timelines, appraisal requirements, and lender approvals helps sellers stay ahead of potential delays. Listing your property through a flat fee MLS service ensures visibility to qualified buyers using conventional loans.

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