What Is a Conventional Loan?
A conventional mortgage is any home loan not backed by a government agency. This distinguishes it from FHA, VA, and USDA loans. Conventional loans are either "conforming" — meaning they meet Fannie Mae and Freddie Mac purchase guidelines — or "non-conforming" (jumbo), which exceed conforming loan limits.
Conforming loans are the most common mortgage product in the US. Because Fannie and Freddie can purchase and securitize them, lenders face lower capital requirements, which translates into competitive rates for borrowers who meet the qualification criteria.
The FHFA sets conforming loan limits annually based on home price appreciation. In 2026, the standard limit is $806,500 for single-family properties in most US counties, with higher-cost area limits reaching $1,209,750.
Qualification Requirements
| Factor | Minimum | Optimal | Notes |
|---|---|---|---|
| Credit Score | 620 | 740+ | Below 740 incurs LLPAs |
| Down Payment | 3% | 20% | Below 20% requires PMI |
| Back-End DTI | 45% | <36% | Up to 50% with DU approval |
| PMI Required | Yes, if LTV >80% | Cancellable at 80% LTV | |
| Loan Limit | $806,500 (2026) | Higher in designated areas | |
Conventional vs Government-Backed
| Feature | Conventional | FHA | VA | USDA |
|---|---|---|---|---|
| Min. Down | 3% | 3.5% | 0% | 0% |
| Min. Credit | 620 | 580 | 620* | 640 |
| MIP/PMI | Cancellable | Lifetime | Funding fee | Annual fee |
| Loan Limit | $806,500 | $524,225 | None | Area limits |
| Property Condition | Flexible | Strict standards | Must pass VA appraisal | Rural only |
| Best For | Most borrowers | First-time buyers | Veterans | Rural buyers |
When Conventional Is Right for You
Choose a conventional loan when: your credit score is above 700, you have 20%+ down payment available (avoiding PMI entirely), the property doesn't meet FHA condition standards, or you're purchasing above FHA loan limits. For most borrowers with solid credit and a meaningful down payment, conventional loans offer the most flexibility and lowest long-term cost.
The PMI Math Decision
3% down on a $400K home = $12,000 down payment but $170+/month in PMI. 20% down = $80,000 but no PMI and a lower rate. The break-even on the extra $68,000 invested vs PMI savings takes ~10 years — during which you'd have earned returns on that capital. This decision is more nuanced than "always put 20% down."
