The Conventional Mortgage Master Guide (2026 Edition)

A conventional loan is any mortgage not insured or guaranteed by the federal government — the opposite of FHA, VA, and USDA loans. Instead, it follows the guidelines of Fannie Mae and Freddie Mac, the two government-sponsored enterprises that buy conventional loans from lenders. Meeting those guidelines is what lets lenders offer competitive rates, and it's why conventional is the most common mortgage in the country.

Two terms get used interchangeably but aren't the same: conventional means not government-backed; conforming means it also stays within Fannie and Freddie's loan limits and rules. Most conventional loans are conforming — but a conventional loan above the limit is a jumbo (see our jumbo loan guide).

Who it's for

Conventional loans suit borrowers with solid credit and steady income who want flexibility and the lowest long-term cost. They finance primary residences, second homes, and investment properties (1–4 units), and because the mortgage insurance is cancellable, they're often the cheapest option over time for buyers who can reach 20% equity. Borrowers with lower credit or thin files may find FHA easier to qualify for — more on that comparison in Section 7.

The tracker above shows how conventional pricing moves with the market — and, just as importantly, how it varies by borrower. Conventional rates aren't one number; they're risk-based.

Your actual rate depends heavily on your credit score and loan-to-value (LTV). Fannie and Freddie apply loan-level price adjustments (LLPAs) — pricing add-ons tied to credit, LTV, occupancy, and property type. A 760-credit borrower with 25% down prices near the benchmark; a 660-credit borrower with 5% down pays a meaningful add-on. That's why two people can get very different conventional quotes on the same day.

What moves your conventional rate

• Credit score — the single biggest lever; each tier (740+, 720, 700, 680…) prices differently.
• LTV / down payment — more equity lowers both your rate and your PMI.
• The lender — the same profile can see a 0.25–0.50% spread between lenders on the same day.

To be "conforming," a conventional loan has to stay within the annual limit set by the Federal Housing Finance Agency (FHFA). Stay under it and your loan is eligible for Fannie/Freddie pricing; go over and it becomes a jumbo.

• County-by-county. Most areas use the $832,750 baseline; high-cost metros (coastal California, the NYC area, and others) go up to the $1,249,125 ceiling.
• High-balance conventional. In a high-cost county, a loan above the baseline but at or below the county ceiling is still conforming — often called "high-balance" — and eligible for Fannie/Freddie pricing, just with slightly different terms.
• Only above your county limit is a jumbo. A conventional loan over your specific county ceiling is non-conforming, with its own credit, down-payment, and reserve rules — see our jumbo loan guide.
• Limits only rise. By law (HERA's "hold harmless" rule), the baseline conforming limit never declines in a downturn — it holds flat or rises, so the threshold trends upward over time.

The most persistent myth in homebuying is that you need 20% down. You don't — but your down payment drives whether you pay PMI, and how much.

Second homes and investment properties require more down (commonly 10–25%).

How PMI works

When you put less than 20% down, lenders require private mortgage insurance (PMI) — it protects the lender, not you, if you default. PMI typically runs 0.3%–1.5% of the loan per year, priced by your credit and LTV, and comes in a few forms:

• Borrower-paid monthly (BPMI) — the most common; a line item in your monthly payment, and the one that can be cancelled (below).
• Single-premium — paid once upfront (or financed), with no monthly charge; it isn't "cancelled" later since you've prepaid the coverage.
• Lender-paid (LPMI) — built into a slightly higher rate; no separate PMI line, but it doesn't cancel either.

How to remove PMI — the part that saves you money

Unlike FHA's insurance, monthly (BPMI) conventional PMI is cancellable, and it's one of conventional's biggest advantages. The 80% and 78% thresholds below are based on your home's original value (purchase price or original appraised value), not today's market value:

• Request it at 80% LTV. Once your balance reaches 80% of the original value (20% equity), you can ask your servicer to cancel PMI.
• Automatic at 78% LTV. By law (the Homeowners Protection Act), the servicer must drop PMI automatically once your balance reaches 78% of the original value, provided you're current.
• Or at the loan's midpoint. If it hasn't dropped by then, PMI also terminates at the midpoint of your amortization schedule (month 180 on a 30-year loan), as long as you're current.
• Use a new appraisal to go faster. Because the thresholds use original value, a fresh appraisal showing 20%+ equity from appreciation can cancel PMI sooner — if your servicer's requirements are met. A powerful move in a rising market.

Conventional files are usually run through automated underwriting — Fannie's Desktop Underwriter (DU) or Freddie's Loan Product Advisor (LPA) — which returns an approval and the exact conditions for your file.

A recent shift worth knowing: as of November 2025, Fannie Mae's DU no longer enforces a hard 620 minimum credit score, using a broader risk assessment of the whole file instead. In practice, lender and mortgage-insurer overlays commonly keep floors near 620, and pricing still improves materially at 700+ and 740+ — but a strong overall file (reserves, low DTI, a larger down payment) now carries more weight than any single number.

"Conventional" covers several structures, plus some genuinely low-down-payment programs:

The 3%-down programs (Conventional 97, HomeReady, Home Possible, plus state housing-agency versions) are the answer to "I have good credit but not much saved." They pair a 3% down payment with reduced PMI and often a short homebuyer-education course. HomeReady and Home Possible add an income cap (typically 80% of area median income); Conventional 97 has no income limit but usually requires at least one first-time buyer.

For buyers with decent-but-not-perfect credit, the real decision is usually conventional vs. FHA. Here's how they line up.

The insurance difference is everything

The single biggest long-term distinction: conventional PMI cancels at 20% equity, while FHA's MIP usually lasts the life of the loan on the common 3.5%-down FHA (it can end after 11 years only if you put 10%+ down). That one difference often makes conventional cheaper over the years — even though FHA's upfront credit bar is lower.

When each wins

• Conventional wins if your credit is roughly 680+ and you'll reach 20% equity — you cancel PMI and stop paying it.
• FHA wins if your credit is in the 580–660 range or your DTI is high — it's more forgiving to qualify. (See our FHA loan guide.)
• A common strategy: start with FHA to get in, then refinance to conventional once you have 20% equity to shed mortgage insurance entirely.

For a borrower with solid credit who will build equity, conventional is usually the lowest-cost mortgage over time — the cancellable PMI and competitive pricing are hard to beat once you clear the credit bar.

• Believing the 20%-down myth. 3–5% down is standard; waiting to save 20% can cost more in rising prices than PMI ever would.
• Forgetting to cancel PMI. Servicers auto-drop it at 78% LTV, but you can request removal at 80% — and an appraisal can get you there faster in a rising market. Don't leave that money on the table.
• Shopping on rate alone. LLPAs and PMI mean the headline rate tells you little. Compare total monthly cost and cash to close across lenders.
• Changing your credit mid-process. New debt, big purchases, or new inquiries during underwriting can re-trigger pricing or sink your approval. Stay still until closing.
• Assuming a 620 decline is final. Credit floors are lender overlays, not a fixed rule — another lender may approve the same file. Shop around.

How much do I need to put down on a conventional loan?

As little as 3% through first-time or income-qualified programs (Conventional 97, HomeReady, Home Possible), or 5% as a standard minimum. Putting 20% down avoids PMI entirely.

What credit score do I need for a conventional loan?

620 is the common floor, though better pricing generally starts around 700 and the best rates go to 740+. Your credit heavily influences your rate, not just your approval.

How do I get rid of PMI?

Request cancellation once you reach 20% equity (80% LTV based on original value); by law it drops automatically at 78%. If your home has appreciated, a new appraisal showing 20%+ equity can remove it sooner.

Is a conventional loan the same as a conforming loan?

Not exactly. "Conventional" means not government-backed; "conforming" means it also fits Fannie/Freddie limits and rules. A jumbo loan is conventional but non-conforming.

Conventional or FHA — which is better?

Conventional usually wins if your credit is around 680+ and you'll reach 20% equity, because PMI cancels. FHA tends to win if your credit or DTI needs more flexibility.

Can I use a conventional loan for an investment property?

Yes — conventional loans finance primary residences, second homes, and 1–4 unit investment properties, with higher down payments for non-owner-occupied homes.

Conventional loans follow Fannie Mae and Freddie Mac guidelines, with limits set annually by the FHFA. Figures reflect typical 2026 rules and vary by lender — confirm current specifics before relying on them.

• FHFA — Conforming Loan Limit Values (official 2026 limits and the county lookup)
• Fannie Mae — Originating & Underwriting (HomeReady, conforming guidelines, DU)
• CFPB — Consumer Mortgage Resources (PMI and Homeowners Protection Act cancellation rules)
• Freddie Mac — Primary Mortgage Market Survey (PMMS) (the rate benchmark used in the tracker above)