A conventional mortgage is a home loan that is not insured or guaranteed by the federal government. Most conventional loans conform to guidelines set by Fannie Mae and Freddie Mac, the government-sponsored enterprises that buy mortgages from lenders. Because they follow standardized guidelines, conventional loans are widely available, competitively priced, and offer the most flexibility of any mortgage type.
Loan amount at or below $766,550 (2026 limit for most areas). Meets Fannie Mae/Freddie Mac guidelines. Best rates, easiest qualification. Available from virtually all lenders.
Loan amount above $766,550 (or higher in high-cost counties like LA, NYC, SF — up to $1,149,825). Stricter requirements: 700+ FICO, 6-12 months reserves, 10-20% down. Rates may be similar or slightly higher than conforming.
| Requirement | Standard | Notes |
|---|---|---|
| Credit Score | 620+ | Best rates at 740+. Below 620 is very difficult. |
| Down Payment | 3-20% | 3% for first-time (HomeReady/Home Possible). 5% standard. 20% to avoid PMI. |
| Max DTI | 45-50% | Up to 50% with strong compensating factors (high credit, reserves). |
| Loan Limits | $766,550 | Higher in high-cost areas. Check your county limit. |
| PMI | Required if <20% down | Cancellable at 80% LTV. Automatic at 78%. Saves thousands vs FHA MIP. |
| Property Types | Most types | Primary, second home, investment. Single-family, condo, multi-unit (2-4). |
Private Mortgage Insurance protects the lender if you default. It's required on conventional loans with less than 20% down. PMI costs $30-$70/month per $100,000 borrowed. The key advantage over FHA: PMI is cancellable. Once you reach 20% equity (via payments or appreciation), you can request cancellation. PMI automatically terminates at 78% LTV on the original amortization schedule. FHA MIP, by contrast, is often for the life of the loan.
PMI Tip: If you put down less than 20% but your home appreciates, you can order a new appraisal to prove you've reached 80% LTV and cancel PMI early. This can save thousands — a $200/month PMI payment canceled 3 years early saves $7,200.
Designed for low-to-moderate income borrowers. Just 3% down. Allows income from non-borrower household members. Reduced PMI rates. Homeownership education required. Income limits apply (80% of area median income or less). Available for purchase and limited cash-out refinance. One of the best low-down-payment conventional options.
Similar to HomeReady — 3% down for qualified borrowers. Flexible sources of funds for down payment. Allows boarder income. Reduced PMI. Income limits apply based on property location. Can be used for purchase, no-cash-out refinance, and manufactured homes.
Standard conventional program with just 3% down. At least one borrower must be a first-time homebuyer. 620 minimum FICO. Loan must be fixed-rate. PMI required but cancellable. Cannot be used for manufactured homes. This is the go-to program for first-time buyers with decent credit who want to avoid FHA's lifetime MIP.
Refinance program for low-income homeowners. Reduced interest rate and lower fees. Income at or below 80% of area median. Must have a Fannie Mae-owned loan. Must be current on mortgage with no 30-day lates in the last 6 months. Provides a tangible benefit: at least 0.5% rate reduction and $50/month savings. Excellent option if you've been in your home a while and rates have dropped.
| Scenario | Better Option |
|---|---|
| Credit score 720+, 10%+ down | Conventional |
| Credit score 580-619, 3.5% down | FHA |
| Want to cancel mortgage insurance | Conventional |
| Higher DTI (45-50%) | FHA |
| Buying a fixer-upper | FHA 203(k) |
| Second home or investment property | Conventional |
| Self-employed with complex income | Conventional (or Non-QM) |