What Is a Conventional Loan?
A conventional loan is any mortgage not backed by a U.S. government agency. Unlike FHA loans (Federal Housing Administration) or VA loans (Department of Veterans Affairs), conventional loans are originated by private lenders and sold to Fannie Mae or Freddie Mac on the secondary market — provided they stay within the conforming loan limits set by the FHFA. That's why they're also called conforming loans when they fall under those caps.
Because there's no government guarantee to absorb losses, lenders hold conventional borrowers to tighter standards. The tradeoff: no upfront mortgage insurance premium, PMI that eventually cancels, and typically lower long-term costs for buyers who qualify with strong credit and a solid down payment.
Conventional loans come in two structures: fixed-rate (your interest rate and principal-and-interest payment never change) and adjustable-rate mortgages (ARMs), where the rate is fixed for an initial period — 5, 7, or 10 years are common — before adjusting annually. Most buyers purchasing a primary residence choose a 30-year fixed, though 15-year and 20-year terms are widely available.
Conventional Loan Requirements 2026
The three numbers that drive conventional loan approval are credit score, down payment, and debt-to-income ratio. Here's where each sits for 2026:
| Requirement | Minimum / Guideline | Notes |
|---|---|---|
| Down Payment | 3% (HomeReady / Home Possible) 5% standard |
20%+ eliminates PMI entirely |
| Credit Score | 620 FICO | 740+ gets best PMI rates and pricing tiers |
| Max DTI (automated underwriting) | 50% | Fannie Mae DU / Freddie Mac LPA; manually underwritten loans cap at 36–45% |
| Loan Limit (most of U.S.) | $832,750 | 2026 FHFA baseline; high-cost ceiling is $1,249,125 |
| PMI Required | Yes, if down payment < 20% | Cancels at 80% LTV (request) / 78% LTV (automatic) |
Down Payment Details
Three percent is the floor for Fannie Mae's HomeReady program and Freddie Mac's Home Possible — both designed specifically to help buyers with modest incomes get into a home without a large cash reserve. HomeReady allows income from non-borrower household members to be counted as a compensating factor. Home Possible has similar income limits but uses Freddie Mac's automated system (Loan Product Advisor).
Standard conventional loans without those program features generally require 5% down. Either way, anything below 20% triggers Private Mortgage Insurance. At 20% down, PMI disappears from the equation, which is why buyers who can hit that threshold often benefit even if it means waiting a bit longer to buy.
Credit Score Impact on Costs
At 620, you'll qualify — but PMI rates and lender pricing adjustments (called Loan-Level Price Adjustments, or LLPAs) hit harder at that threshold. A borrower at 620 putting 5% down will pay meaningfully more per month than a 740-score buyer in the same scenario, not just because of the rate but because PMI is priced by credit score. If your score is borderline, spending a few months paying down revolving debt to get above 660 or 680 can lower both your rate and your PMI cost.
Debt-to-Income Ratio
DTI is your total monthly debt obligations divided by gross monthly income. Fannie Mae's Desktop Underwriter (DU) and Freddie Mac's Loan Product Advisor (LPA) — the automated systems that underwrite most conforming loans — can approve loans up to 50% DTI when compensating factors like high reserves or strong credit offset the risk. In practice, lenders get more comfortable below 43–45%. Manually underwritten loans face a stricter cap of 36%, extendable to 45% with specific compensating factors.
Private Mortgage Insurance (PMI)
PMI is what makes low-down-payment conventional loans possible. It protects the lender — not you — in the event you default. The cost typically runs 0.46% to 1.50% of your original loan amount per year, split into monthly installments added to your payment. On a $400,000 loan, that's roughly $153 to $500 per month, depending on your credit score, LTV, and the insurer.
The good news is that PMI on a conventional loan is temporary. The Homeowners Protection Act of 1998 establishes two firm rules:
- Borrower-requested cancellation: Once your loan balance reaches 80% LTV (based on the original appraised value or purchase price, whichever was lower) and your payment history is clean, you can submit a written cancellation request to your servicer. They may require a new appraisal to confirm value hasn't declined.
- Automatic cancellation: Your servicer must automatically terminate PMI on the date your scheduled amortization reaches 78% LTV — no request required. This date appears on your closing disclosure.
One exception to watch: Automatic cancellation applies to the scheduled paydown date, not actual payments. If you've made extra principal payments, you may hit 80% LTV sooner than scheduled — but automatic cancellation still triggers at the scheduled date. Submit a written request to cancel early when you've built enough equity through prepayments or home value appreciation.
PMI is not the same as FHA mortgage insurance (MIP), which has different cancellation rules and in many cases is permanent for the life of the loan. That distinction matters when comparing the two loan types.
2026 Conforming Loan Limits
Each November, the FHFA adjusts conforming loan limits to reflect the prior year's change in average U.S. home prices. House prices rose 3.26% between Q3 2024 and Q3 2025, so the 2026 limits increased by the same percentage.
| Area Type | One-Unit Property | Source |
|---|---|---|
| Most of the U.S. (baseline) | $832,750 | FHFA, Nov. 25, 2025 |
| High-cost areas (ceiling) | $1,249,125 | 150% of baseline |
| Alaska, Hawaii, Guam, U.S. Virgin Islands | $1,249,125 (baseline) / $1,873,675 (ceiling) | Special statutory provisions |
The 2026 baseline of $832,750 is up from $806,500 in 2025, an increase of $26,250. Loans above the applicable limit for your county are classified as jumbo loans and fall outside Fannie Mae and Freddie Mac guidelines — they require separate underwriting and typically carry higher rates or stricter requirements.
High-cost areas are counties where 115% of the local median home value exceeds the baseline limit. You can look up your county's specific limit on the FHFA conforming loan limit data page.
Conventional vs. FHA
Both loan types serve buyers who can't put 20% down, but they work differently. The right choice depends on your credit score, how long you plan to stay in the home, and the local market.
| Feature | Conventional | FHA |
|---|---|---|
| Min. Down Payment | 3% (HomeReady / Home Possible) 5% standard |
3.5% (580+ score) 10% (500–579 score) |
| Min. Credit Score | 620 (most lenders) | 500 (with 10% down); 580 for 3.5% |
| Mortgage Insurance | PMI; cancels at 80% LTV (request) or 78% (auto) | Upfront MIP (1.75%) + annual MIP; often permanent for loans <10% down |
| Loan Limit (2026, most areas) | $832,750 | $524,225 (baseline); varies by county |
| Property Condition | Standard appraisal guidelines | Stricter; property must meet HUD Minimum Property Standards |
| Best For | 620+ credit, lower long-term costs, higher loan amounts | Below 620 credit, looser DTI, fixer-upper situations |
For buyers with a 620–679 credit score, the comparison isn't always obvious. FHA rates tend to run lower, but FHA MIP often costs more over time and doesn't cancel if you put less than 10% down. Run both scenarios with actual loan estimates before deciding.
Sample Conventional Monthly Payment
Note: The figures below are estimates based on illustrative inputs. Rates, PMI costs, taxes, and insurance vary significantly by borrower and location. Use these as a framework — not a quote.
Scenario: $450,000 purchase price, 5% down ($22,500), 30-year fixed at 6.75% (estimated market rate, June 2026), 700 credit score, Texas location.
- Loan amount: $427,500
- Principal & interest: ~$2,772/month
- PMI (estimated ~0.65%/yr): ~$232/month
- Property taxes (Texas avg ~1.7%): ~$638/month
- Homeowners insurance (estimated): ~$175/month
- Estimated total PITI: ~$3,817/month
At 20% down ($90,000), the same purchase eliminates PMI, drops the loan to $360,000, and reduces P&I to ~$2,335. Total estimated PITI falls to roughly $3,148/month — a $669 monthly difference. Over 30 years, that gap is substantial, but it has to be weighed against the opportunity cost of tying up a larger down payment. Use our calculator to stress-test both scenarios with your actual numbers.
Calculate Your Conventional Loan Payment
Plug in your price, down payment, and rate — see the full monthly number including taxes and insurance.
Use the Mortgage Calculator →Frequently Asked Questions
What is the minimum down payment for a conventional loan in 2026?
As low as 3% for first-time buyers using Fannie Mae HomeReady or Freddie Mac Home Possible. Standard conventional loans without those program overlays typically require 5% down. A 20% down payment eliminates PMI entirely and lowers your monthly payment substantially.
What credit score do I need for a conventional loan?
Most lenders require a minimum 620 FICO score. Fannie Mae and Freddie Mac removed their own automated-underwriting credit score floor in late 2025, but lenders almost universally maintain a 620 minimum through their own guidelines. Higher scores — especially 740 and above — unlock better PMI rates and more favorable loan-level pricing adjustments (LLPAs).
When does PMI go away on a conventional loan?
Under the Homeowners Protection Act, you can request PMI cancellation in writing once your loan balance reaches 80% LTV based on the original purchase price and scheduled payments, provided your payment history is satisfactory. Your servicer must automatically cancel PMI once the balance drops to 78% LTV through scheduled amortization — no action required on your part. These rules apply only to conventional loans; FHA mortgage insurance has different, often less favorable, cancellation terms.
What is the 2026 conforming loan limit?
The FHFA set the 2026 baseline conforming loan limit at $832,750 for a one-unit property in most of the United States, announced November 25, 2025 — up $26,250 from the 2025 limit of $806,500. High-cost areas carry a ceiling of $1,249,125. Loans exceeding your county's applicable limit are jumbo loans and fall outside Fannie Mae and Freddie Mac purchase guidelines. Confirm your county's specific limit at fhfa.gov.