A conventional loan is a mortgage not insured or guaranteed by the federal government — most are sold to Fannie Mae or Freddie Mac. Conventional is the default mortgage for borrowers with strong credit and stable income. It has the lowest long-term cost when you have 20% down (no PMI), removable PMI when you don’t, and the widest selection of loan options. This master FAQ covers everything: credit, down payment, the 2026 conforming limit ($832,750), high-balance loans, PMI rules, HomeReady and Home Possible, and how conventional stacks up against FHA, VA, and jumbo. Every answer is built from current Fannie Mae and Freddie Mac selling guides. Lending in 49 states. New York excluded.
No SSN required. Takes about 2 minutes.
1. Conventional Loan Basics
What is a conventional loan?
A conventional loan is a mortgage that’s not insured or guaranteed by the federal government (not FHA, VA, or USDA). Most conventional loans are “conforming” — meaning they meet Fannie Mae and Freddie Mac’s purchase criteria and can be sold to those agencies. Conventional loans are the default choice for borrowers with strong credit and stable income.
What’s the difference between conforming and conventional?
Conventional = not government-insured. Conforming = meets Fannie/Freddie loan limits and guidelines. All conforming loans are conventional, but not all conventional loans are conforming. A jumbo loan is conventional (not government-insured) but non-conforming (above the loan limit). Most people use “conventional” to mean “conforming conventional” — the most common type.
Who is a conventional loan for?
Borrowers with 620+ credit, stable documented income, and a down payment between 3% and 20%+. Conventional is the default mortgage for most W-2 borrowers with clean credit. It’s the long-term winner once you have 20% equity (no PMI).
What’s the difference between Fannie Mae and Freddie Mac?
Both are government-sponsored enterprises (GSEs) that buy conventional loans from lenders. They have nearly identical guidelines on most things — credit floors, LTV, DTI, property rules. Some borrower scenarios qualify under one but not the other (rare). Lenders typically run files through both automated underwriting systems (Fannie’s DU and Freddie’s LPA) and pick whichever path gives the better approval.
What happens to my loan after closing?
For most conventional loans: the lender sells the loan to Fannie Mae or Freddie Mac shortly after closing. Your servicer (who you make payments to) may or may not be the original lender — and may change over time. The loan terms don’t change, only who collects the payment. You’ll receive written notice of any servicing transfer.
2. 2026 Loan Limits
What’s the 2026 conforming loan limit?
$832,750 baseline for a one-unit property in most counties — an increase of $26,250 from the 2025 limit of $806,500. In designated high-cost counties, the ceiling is $1,249,125 (150% of the baseline). Above the high-cost ceiling, loans become jumbo. Limits adjust annually based on the FHFA House Price Index.
What are the 2026 limits for 2-4 unit properties?
2-unit baseline: approximately $1,066,050. 3-unit baseline: approximately $1,288,500. 4-unit baseline: approximately $1,601,750. High-cost county limits scale proportionally higher. Exact 2026 county-level limits are published by the FHFA.
What’s a high-balance conforming loan?
A conforming loan in a high-cost county, with a loan amount between the standard $832,750 baseline and the $1,249,125 ceiling. High-balance loans are still conforming (Fannie/Freddie can buy them), but have slightly different pricing — typically a small rate add-on or fee. Above the high-cost ceiling, loans become jumbo (non-conforming) entirely.
How do I know if my county is high-cost?
FHFA publishes the high-cost county list annually. Common high-cost counties include most of the San Francisco Bay Area, Los Angeles County, parts of New York City and surrounding counties, Hawaii, Alaska, and the DC metro area. About 100 counties carry high-cost status; we check your specific county at intake.
3. Credit Score Rules
What’s the minimum credit score for a conventional loan?
620 is Fannie Mae and Freddie Mac’s minimum. Below 620, conventional financing isn’t available — you’d route to FHA. Note: 620 is the agency floor but lenders may have overlays setting their own minimum at 640 or 660.
What credit score gets me the best conventional rate?
740+ is where conventional rates and PMI really shine. Conventional pricing is very credit-sensitive — the difference between 680 credit and 760 credit can be 0.5%+ in rate and substantially lower PMI. Above 780, rate improvements get marginal but PMI continues to drop.
Should I get FHA or conventional with 620 credit?
At exactly 620, FHA usually beats conventional on rate (FHA rates are less credit-sensitive). Conventional at 620 carries higher PMI and rate adjustments that make the monthly payment more expensive. The path to consider: use FHA to acquire, refinance to conventional once your credit improves to 680-720+.
If I have a co-borrower, which credit score is used?
The lower of the two median scores. Each borrower gets a median score (middle of three credit bureaus). The lower of those medians is the file’s qualifying credit score. This is why a co-borrower with weaker credit drags pricing — sometimes the better strategy is to leave them off the loan.
4. Down Payment & LTV
How much down payment do I need for a conventional loan?
3% for first-time homebuyers using HomeReady or Home Possible. 5% for most other first-time buyers. 10% for second homes (minimum). 15-25% for investment properties. 20% to avoid PMI entirely on primary residence purchases.
Can I get a conventional loan with 3% down?
Yes — through HomeReady (Fannie Mae) or Home Possible (Freddie Mac). Both programs allow first-time homebuyers (and in some cases non-first-time buyers below income limits) to put 3% down with reduced PMI compared to standard conventional. Income limits apply (typically 80% of area median income), and homebuyer education is required.
Can I use gift funds for my conventional down payment?
Yes. On a primary residence, the entire down payment can come from documented gift funds from family. On second homes and investment properties, the borrower must contribute at least the minimum required from their own funds, with gifts allowed above that floor. Gift letters and documentation required in all cases.
Can the seller pay my closing costs?
Yes, up to interested-party contribution limits: 3% at LTV above 90%, 6% at LTV 75.01-90%, 9% at LTV 75% or below. The limits apply to primary residences. Second homes and investment properties have lower IPC ceilings (typically 2% on investment).
Can I do a temporary buydown on a conventional loan?
Yes. Seller-paid 2-1 buydowns, 3-2-1 buydowns, and other temporary structures are allowed within the standard IPC limits. The buydown funds (from the seller) lower the borrower’s rate for the first 1-3 years of the loan. Useful when the seller would otherwise reduce the price.
5. Private Mortgage Insurance (PMI)
What is PMI?
PMI (Private Mortgage Insurance) is insurance that protects the lender against loss if you default. Required on conventional loans with less than 20% down (LTV greater than 80%). The PMI premium depends on credit score, LTV, loan type, and other factors — ranging from about 0.3% to 1.5% of the loan amount annually.
How much is PMI on a conventional loan?
Varies significantly by credit score and LTV. At 760+ credit with 5% down: roughly 0.30% per year. At 700 credit with 5% down: roughly 0.60% per year. At 640 credit with 5% down: roughly 1.00-1.50% per year. On a $300,000 loan that’s about $75-$375/month depending on profile.
When does PMI go away?
Automatically at 78% LTV based on the original purchase price (federal Homeowners Protection Act requirement). You can request removal at 80% LTV based on either original price or current market value (with a new appraisal). Refinancing into a new loan with 80% LTV or less also drops PMI. The PMI difference between FHA and conventional is significant over the long term.
Can I pay PMI as a lump sum at closing?
Yes. Several options: monthly PMI (most common, paid in each mortgage payment), single-premium PMI (paid as a lump sum at closing, often financed into the loan), lender-paid PMI (built into a slightly higher rate, no separate PMI line item), and split-premium (combination of upfront and monthly). We model each option at intake.
Is PMI tax-deductible?
PMI tax deductibility has varied year to year in the tax code. As of recent tax law, mortgage insurance may or may not be deductible depending on income and current year rules. Consult your tax preparer for your specific situation — we don’t give tax advice.
No SSN required. Takes about 2 minutes.
6. DTI & Income
What’s the maximum DTI on a conventional loan?
50% in most cases through DU (Desktop Underwriter) or LPA (Loan Product Advisor) automated approvals with strong compensating factors. The traditional “rule of thumb” was 43% but conforming guidelines now routinely approve files up to 50% DTI with appropriate credit and reserves. Manual underwriting caps are tighter.
What income sources does conventional accept?
W-2 wages, self-employment income (2-year history), Social Security, pension, retirement account distributions, child support, alimony, rental income from other properties, bonus/commission income (2-year history), and capital gains in some cases. Variable income gets averaged over 2 years. Non-taxable income can be grossed up 25%.
Can a self-employed borrower get a conventional loan?
Yes. Self-employed borrowers need 2 years of personal AND business tax returns, year-to-date P&L if more than 90 days past year-end, and verification the business is still active. Conventional uses net taxable income — if write-offs reduce qualifying income below what you need, a non-QM loan (bank statement, P&L) may work better.
Can a borrower with no income use a conventional loan?
No — conventional requires documented income to support the qualifying DTI. Borrowers with substantial assets but no income should look at non-QM asset depletion loans, which qualify on assets rather than income.
How does conventional handle deferred student loans?
Conventional uses the actual payment on the credit report, or if the loan is in deferment/forbearance, either the payment shown on documentation from the loan servicer or a calculated payment (typically 0.5-1% of the outstanding balance depending on current Fannie/Freddie policy). Income-driven repayment (IDR) plans documented with current statements can use the IDR payment.
7. Property Types & Occupancy
Can I use a conventional loan for a primary residence?
Yes — primary residences get the best LTV (up to 97% on first-time buyer programs), lowest down payment requirements, and best rates within conventional. Most conventional loans are for primary residences.
Can I use a conventional loan for a second home?
Yes. Second home conventional loans require 10% down minimum (vs 3-5% for primary). The home must be reasonable distance from your primary residence, available for your year-round personal use, and not subject to rental agreements or rental pool requirements. Restricted to 1-unit properties.
Can I use a conventional loan for an investment property?
Yes. Investment property conventional loans typically require 15-25% down depending on loan amount and credit. Higher rates than primary residence (rate adjustment for investment occupancy). Up to 10 financed properties allowed under Fannie’s investor policy (with restrictions on the 5th-10th property). For more aggressive scaling, DSCR loans (non-QM) often work better.
Can I use a conventional loan for a 2-4 unit property?
Yes. Multi-unit conventional loans are allowed for both owner-occupied and investment. 2-4 unit owner-occupied loans require higher down payments than 1-unit (15% minimum for 2-unit, 25% for 3-4 unit on some programs). Rental income from the other units helps qualify.
Can I buy a condo with a conventional loan?
Yes, if the condo project is “warrantable” (meets Fannie/Freddie criteria). Warrantability checks the HOA’s financial reserves, owner-occupancy ratio, insurance, percentage of investor-owned units, commercial space, and other factors. Non-warrantable condos require a non-QM loan instead. We check warrantability for your target condo at intake.
What about manufactured homes?
Conventional financing for manufactured homes is available but more limited than FHA. Fannie’s MH Advantage and Freddie’s CHOICEHome programs offer competitive terms for manufactured homes meeting specific quality and design criteria. Older mobile homes typically don’t qualify.
8. Refinance Options
Can I refinance my conventional loan?
Yes. Three main options: rate-and-term (improve rate or term, no cash out), cash-out (pull equity, up to 80% LTV on primary), and limited cash-out (pull a small amount of cash, treated as rate-and-term up to certain limits).
What’s the max LTV on a conventional cash-out refinance?
80% on a 1-unit primary residence. 75% on 2-4 unit primary, second home, and investment property. Cash-out is the difference between the new loan amount and the existing mortgage payoff plus closing costs.
Can I refinance from FHA to conventional?
Yes — common path. Once you have 20% equity in your home (through paying down principal or home value appreciation), refinancing from FHA to conventional drops the FHA MIP entirely (since conventional with 20%+ equity has no PMI). Many borrowers run this play 3-7 years after the original FHA purchase.
Can I refinance with less than 20% equity to drop PMI?
Generally no — but you can refinance to a lower PMI rate if your credit has improved significantly since the original loan. The cleanest PMI removal is at 20% equity. Below 20%, your monthly PMI may improve through refinancing but won’t disappear.
9. Special Programs
What is HomeReady?
Fannie Mae’s affordable conventional program for first-time and lower-income buyers. Allows 3% down with reduced PMI compared to standard conventional. Income limits apply (typically 80% of area median income — varies by census tract). Homebuyer education required. Allows non-occupant co-borrowers more flexibly than standard conventional.
What is Home Possible?
Freddie Mac’s affordable conventional program for first-time and lower-income buyers — the Freddie equivalent of HomeReady. 3% down with reduced PMI. Income limits typically 80% of area median income. Homebuyer education required. Slightly different qualifying rules than HomeReady — we run files through both to find the better fit.
Are conventional renovation loans available?
Yes — Fannie’s HomeStyle Renovation loan and Freddie’s CHOICERenovation loan. Both finance purchase + renovation in one loan, similar to FHA 203(k). Generally more permissive than 203(k) on what counts as eligible renovation work (including outdoor improvements, pools, additions). Loan amount based on after-improved value.
10. Conventional vs Other Loan Types
Conventional vs FHA — which is better?
Strong credit (680+): conventional wins long-term — removable PMI, lower lifetime cost, no funding fees. Moderate credit (620-680): close call — FHA has lower rates but lifetime MIP makes it more expensive long-term. Weaker credit (below 620): FHA only (conventional doesn’t qualify). Most strong borrowers use conventional; most weaker-credit borrowers start with FHA and refinance to conventional later.
Conventional vs VA — which is better for veterans?
For veterans with full VA entitlement: VA almost always wins. VA: 0% down, no monthly PMI/MI, often lower rates. Conventional: 3-20% down, PMI required below 80% LTV, slightly higher rates for veterans on equivalent terms. The exception is when a veteran has no remaining entitlement — conventional may then be the only option for the loan amount needed.
Conventional vs jumbo — when does each apply?
Below the conforming limit ($832,750 in most counties): conventional is the right path — easier underwriting, lower rates, more program flexibility. Above the conforming limit: you need a jumbo loan. Just above the conforming limit, putting more cash down to stay conforming is sometimes the smarter play than going jumbo.
Conventional vs non-QM — when does each apply?
Conventional wins when your income is clean W-2 or tax-return-supported. Non-QM (bank statement, 1099, P&L, asset depletion) wins when tax returns don’t tell your full income story — self-employed borrowers with substantial write-offs, 1099 contractors, asset-rich borrowers without strong monthly income. Non-QM carries a rate premium but qualifies you on more income.
11. The Application Process & After Closing
Step 1: Start the intake.
Fill out the short intake form. No SSN. No hard credit pull. About 2 minutes.
Step 2: Pre-qualification call.
We talk through credit, down payment, income, and target purchase. We confirm conventional eligibility and calculate your maximum loan amount with payment estimate.
Step 3: Formal pre-approval.
You submit W-2s, pay stubs, tax returns (if applicable), asset statements, and ID. We pull credit. The file runs through DU or LPA automated underwriting. Pre-approval letter issued.
Step 4: House hunt, contract, appraisal.
Find your home. Conventional appraisals are less restrictive than FHA — typically focused on value rather than condition (though obvious safety issues still need to be addressed). Many conventional purchases use a desktop or hybrid appraisal where the file qualifies.
Step 5: Underwriting and closing.
An underwriter reviews the file. Conditions come back, you provide what’s asked. You receive the Closing Disclosure at least 3 business days before closing. At closing, you sign at the title company, funds wire, deed records, you get the keys.
How long does a conventional loan take to close?
21-30 days is typical on a clean conventional purchase — often faster than FHA or USDA because conventional appraisals are more permissive and the underwriting is more streamlined.
What if I have trouble making payments?
Call the servicer immediately. Conventional loans have established loss mitigation programs through Fannie and Freddie — forbearance, loan modification, repayment plans. A HUD-approved housing counselor can help you navigate the options.
No SSN required. Takes about 2 minutes.
About this guide: Written by J.D. Peck, NMLS #314883, Area Manager and Mortgage Loan Originator at Paramount Residential Mortgage Group (PRMG), NMLS #75243. 25+ years of mortgage lending experience, 3,100+ loans closed, Scotsman Guide Top Originator 2026. Every answer above is built from current Fannie Mae Selling Guide and Freddie Mac Single-Family Seller/Servicer Guide, plus the 2026 conforming loan limits published by FHFA. Guidelines, fees, and limits are subject to change. Lending in 49 states. New York excluded. Last updated June 6, 2026.