A conventional loan is not backed by the federal government; rather, it is issued by a private financial institution. It typically has stricter credit requirements than a government-backed loan. That's because the lender takes on more risk without a guarantee from a government agency if a borrower cannot pay.

Conventional loans fall into two categories: conforming and non-conforming.

• A conforming loan meets the requirements to be sold to Fannie Mae or Freddie Mac, the government-backed housing finance giants that buy mortgages from lenders and sell them to investors. Conforming loans must not exceed loan limits set by the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac. If you want a one-unit property, that amount in 2025 for most of the United States is $806,500.

• Those conventional loans that exceed this loan limit are known as non-conforming conventional loans, sometimes referred to as Jumbo Loans, portfolio loans, and investor loans.  These conventional loans do not meet the loan requirements for Fannie Mae and Freddie Mac and so are not purchased by them.  Rather, they are funded by lenders or private institutions.