A Conventional Loan is one with no government ties like those offered with the backing of the Department of Veterans Affairs or the Federal Housing Authority. Two types of conventional loans include a secured loan, meaning one with collateral, and an unsecured or signature loan, one based on the creditworthiness and financial condition of the borrower. Secured loans generally are offered at lower interest rates than unsecured loans. In reference to conventional loans, the term applies to mortgage loans and has both pros and cons. Fannie Mae and Freddie Mac do not originate home loans, but purchase mortgage loans approved lenders and banks to provide mortgage financing to home buyers and homeowners who wish to refinance their current mortgage.

Mortgages that are purchased by either Fannie Mae or Freddie Mac are called conventional loans; because these loans conform to the Fannie and Freddie underwriting guidelines and lending limits. Conventional loans (i.e. Fannie Mae and Freddie Mac) are not guaranteed or insured by the federal government. Odds are, if the loan is not FHA then it's a Fannie Mae or Freddie Mac loan. The minimum down payment of 3% is possible with conventional loans; however, the 3% down payment is dependent on the borrower's credit score and location of the home. Generally, a down payment of at least 5% is required. Homes located in some areas of California may require a higher down payment. Down payments with less than 20% down payment on Conventional Mortgages require "private mortgage insurance". Private mortgage insurance companies like any other insurance companies are risk averse. Therefore, since some areas of the country have high foreclosure rates, the "PMI" companies will require a higher down payment.

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