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A conventional loan is not insured by the government. Usually a 30-year fixed rate mortgage or a 15 year fixed rate mortgage. All conforming loans are conventional, but not all conventional loans are conforming. A conforming loan is purchased by Fannie Mae or Freddie Mac, the remaining conventional loans are held directly by banks. Most mortgages are both conventional and conforming loans. Conventional loans usually require a 20 percent down payment but this can be as little as a 5% down with private mortgage insurance if the borrowers qualify for it.

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How does a conventional loan work? For example, if a house costs $200,000, the lender will provide a loan for 80 percent of that amount. So, $160,000 is financed through the lender and the borrower must pay $40,000 cash. Conventional loans usually have lower interest rates than non-conventional loans and can be a great option for those with a 20 percent down payment. However, even if the borrower does not have a 20 percent down payment, it is still possible to get a mortgage. By putting less down and accepting a possibly higher interest rate, the borrower can still get financing through a non-conventional loan.