What Is a Conventional Loan?
A conventional loan is any mortgage that is not insured or guaranteed by a federal government agency. Unlike FHA, VA, or USDA loans, conventional mortgages are backed solely by private lenders and conform to guidelines set by Fannie Mae and Freddie Mac. These two government-sponsored enterprises purchase the majority of conforming conventional loans on the secondary market.
Conventional loans are the most common type of mortgage in the United States, accounting for roughly 70-80% of all home purchase loans. They offer significant flexibility in terms, down payment options, and property types, making them suitable for a wide range of Georgia home buyers.
Advantages of Conventional Loans
PMI Drops Off
Cancel PMI at 80% LTV, auto-removed at 78%
No Upfront MIP
No 1.75% upfront fee like FHA loans
As Low as 3% Down
Conventional 97 program for first-time buyers
Investment Properties
Can finance rentals and second homes
Flexible Terms
10, 15, 20, 25, or 30-year options
Higher Loan Limits
Conforming limit of $832,750 for 2026
Credit Requirements
Conventional loans generally require higher credit scores than government-backed alternatives. The minimum score for most lenders is 620, though borrowers with scores below 680 will face higher interest rates and PMI premiums. The best rates and terms are reserved for borrowers with scores of 740 or higher.
Your credit score directly impacts your PMI cost. A borrower with a 760+ score putting 5% down might pay 0.25% annually for PMI, while a borrower with a 680 score at the same down payment could pay 0.75% or more. This makes credit improvement one of the most cost-effective ways to reduce your mortgage expenses.
Understanding PMI
Private Mortgage Insurance (PMI) is required on conventional loans when the down payment is less than 20%. Unlike FHA's mortgage insurance, conventional PMI can be removed once you reach 20% equity in your home. Under the Homeowners Protection Act, your lender must automatically cancel PMI when your loan balance reaches 78% of the original property value.
You can also request PMI removal at 80% loan-to-value by contacting your servicer, provided your payment history is current and you can demonstrate through an appraisal that the home hasn't declined in value. In Georgia's appreciating housing markets, many homeowners reach this threshold faster than their original amortization schedule would suggest.
Conventional vs. Government Loans
| Feature | Conventional | FHA | VA |
|---|---|---|---|
| Min. Down | 3% | 3.5% | 0% |
| Min. Credit | 620 | 580 | None |
| PMI/MIP | Removable | Life of loan* | None |
| Upfront Fee | None | 1.75% | 1.25-3.3% |
| Investment OK | Yes | No | No |
*FHA MIP removed after 11 years with 10%+ down
When to Choose Conventional
Conventional loans are typically the best choice for Georgia buyers with strong credit (700+), 10-20% down payment, or those buying investment properties and second homes. If you have a credit score above 740 and at least 5% down, a conventional loan often costs less than an FHA loan over the life of the mortgage due to the ability to cancel PMI and the absence of upfront insurance premiums.
For first-time Georgia buyers with limited savings but good credit, the Conventional 97 program allows just 3% down. When combined with Georgia Dream down payment assistance, the out-of-pocket cost can be minimal while avoiding FHA's lifetime mortgage insurance requirement.