Conventional home loans are any mortgage loan that is not part of a special government program. If you go to bank and get a loan that's not through any special program, such as VA or FHA, it is likely a conventional loan.

Requirements for a conventional loan

There are two main requirements for getting a conventional loan: a good credit score and a 20 percent down payment.

To get the best interest rate on a conventional loan, you typically have to have a credit score of about 750 to 760 or higher on the FICO scale. If you have a credit score lower than this mark, you may have to pay a higher interest rate than what is advertised or you may not qualify for the loan at all.

Another requirement for a conventional loan is that you put down 20 percent of the purchase price. If you don't have a 20 percent down payment, it doesn't mean you can't get a conventional mortgage, but you will have to pay for mortgage insurance, which is a type of insurance that protects the lender in the event that you default. You usually pay your mortgage insurance monthly, although some lenders allow you to pay it annually, and you will have to keep it until you reach 20 percent equity in your home.

Benefits of a conventional loan

Conventional loans have many benefits over government loan programs. If you can qualify for a conventional loan, you will typically get a lower interest rate than you would if you got a VA or FHA loan. Conventional loans also usually have lower fees than government-backed loans.

In many cases, conventional loans offer more flexible terms than government-backed loans. A bank issuing a conventional loan may be more willing to negotiate on fees or other terms of the loan. A conventional lender may also be willing to finance additional items such as personal property in the loan. And conventional loans may have more flexible underwriting criteria than government programs.

Conventional loans also may offer more options in terms of payback terms and adjustable interest rates than government loan programs. For instance, instead of the traditional 15- or 30-year terms, you may be able to get a 10-year, 20-year 25-year or even 40-year term.