What defines a conventional mortgage loan?

A conventional mortgage loan is defined as a loan that is not insured or guaranteed by a government agency. This means it is a private loan, typically provided by banks, credit unions, or mortgage companies, rather than federal programs like FHA or VA loans. Because it lacks government backing, lenders may require a higher credit score and additional documentation to mitigate risk.

Conventional loans can be further divided into conforming and non-conforming loans, with conforming loans meeting specific criteria set by Fannie Mae and Freddie Mac, while non-conforming loans do not. This distinction is vital in the financing landscape, affecting terms, rates, and borrower eligibility.

While some conventional loans may not require private mortgage insurance (PMI) if the borrower makes a significant down payment, this characteristic does not define the loan itself. Instead, it is the absence of government insurance or guarantees that distinctly characterizes a conventional mortgage.