Competitive rates, flexible property options, and mortgage insurance that actually goes away. Your clear-cut guide to conventional loan requirements in 2026.
What is a Conventional Loan?
A conventional loan is a mortgage not backed by any government agency. It follows guidelines set by Fannie Mae or Freddie Mac. It requires a minimum 620 credit score and as little as 3% down through special programs. Unlike FHA loans, conventional PMI is removable once you reach 20% equity. Conventional loans are the only conforming option for second homes and investment properties.
3% Down
HomeReady, Home Possible, and Conventional 97.
PMI Goes Away
Removable at 80% LTV. Automatic at 78%.
Flexible Property
Primary, second home, or investment property.
No Upfront MI
Skip FHA 1.75% upfront premium entirely.
If you are shopping for a home and you do not have military service (that is the VA loan) and you want more flexibility than an FHA loan, a conventional loan is probably where you will land. And that is a good thing.
Conventional loans are the most common mortgage type in America for a reason. They offer competitive rates, flexible property options, and mortgage insurance that actually goes away. This guide breaks down everything you need to know about conventional loan requirements in 2026.
What Is a Conventional Loan?
A conventional loan is any mortgage that is not backed by a government agency. Instead, conventional loans follow guidelines set by Fannie Mae or Freddie Mac. Because there is no government insurance, they typically require stronger credit and a larger down payment than FHA, but you get lower overall costs, more property options, and mortgage insurance that does not stick around.
Eligibility Requirements
- U.S. citizen, permanent resident, or eligible non-citizen status
- Minimum 620 FICO credit score
- Stable income and employment history (typically 2 years)
- DTI ratio within guidelines
- Down payment of at least 3% (program-dependent)
Conventional loans allow primary residences, second homes, and investment properties. FHA and VA are limited to primary residences only.
Down Payment
You do not need 20% down for a conventional loan. Here is what is actually required:
- 3% down: Special programs for qualified buyers
- 5% down: Standard minimum for most borrowers
- 10% down: Required for second homes
- 15% down: Required for investment properties (multi-unit)
- 20% down: Eliminates PMI entirely
3% Down Programs: HomeReady, Home Possible, and Conventional 97
Fannie Mae HomeReady
For lower-income borrowers (income generally cannot exceed 80% of area median). Reduced PMI rates, flexible co-borrower income options, no first-time buyer requirement.
Freddie Mac Home Possible
Income limits apply, but discounted PMI and flexible down payment sourcing including gifts and employer assistance. Not limited to first-time buyers.
Conventional 97
3% down, no income limits, but at least one borrower must be a first-time buyer (no ownership in the past three years).
All three programs allow 100% gift funds for down payment.
Credit Score Requirements
- 620: Minimum for most conventional programs
- 680: Where rates start improving noticeably
- 700+: Competitive pricing territory
- 740+: Best rates and lowest PMI costs
Private Mortgage Insurance (PMI)
PMI is required when your down payment is less than 20%. It typically runs 0.3% to 1.5% of your loan amount per year. Unlike FHA mortgage insurance, conventional PMI goes away.
How PMI Gets Removed
- Request cancellation at 80% LTV. Once your loan balance hits 80% of original appraised value, request removal from your lender.
- Automatic termination at 78% LTV. Your lender is required by law to cancel PMI automatically. You do not have to ask.
- Midpoint termination. PMI must be removed by month 180 of a 30-year loan regardless of LTV.
A fourth path. If your home has appreciated significantly, get a new appraisal showing 20% equity and request early removal. Compare that to FHA, where MIP stays for the life of the loan with under 10% down.
Loan Limits in 2026
| Area Type | 2026 Limit (Single-Family) |
|---|---|
| Most U.S. counties (baseline) | $832,750 |
| High-cost areas (ceiling) | $1,249,125 |
| Alaska, Hawaii, Guam, U.S. Virgin Islands | $1,249,125 |
Debt-to-Income (DTI) Requirements
- Standard maximum: 43% back-end DTI
- Often up to 45% to 50% with strong compensating factors and AUS approval
Property Requirements
- Primary residences: yes
- Second homes / vacation homes: yes
- Investment properties: yes (with higher down payment)
- Condos: wider range of approved condos vs. FHA or VA
- Fixer-uppers: easier to finance with less rigid condition standards
Closing Costs and Seller Concessions
| Down Payment | Max Seller Concession |
|---|---|
| Less than 10% | 3% of purchase price |
| 10% to 25% | 6% of purchase price |
| 25% or more | 9% of purchase price |
| Investment property | 2% of purchase price |
Conventional loans have no upfront mortgage insurance fee. FHA charges 1.75% upfront. With conventional, you skip that entirely.
Conventional vs. VA vs. FHA: Side-by-Side
| Feature | Conventional | VA | FHA |
|---|---|---|---|
| Minimum Down Payment | 3% / 5% standard | 0% | 3.5% |
| Minimum Credit Score | 620 | No VA minimum (lenders: 620) | 500 (580 for 3.5% down) |
| Mortgage Insurance | PMI, removable at 80% LTV | None (VA Funding Fee instead) | MIP, life of loan under 10% down |
| 2026 Loan Limit | $832,750 to $1,249,125 | No limit (full entitlement) | $541,287 to $1,249,125 |
| Property Types | Primary, second home, investment | Primary residence only | Primary residence only |
If you qualify for VA, that is almost always worth exploring first: VA Loan Guide. If your credit is below 620 or savings are tight, FHA may be the better path: FHA Loan Guide.
Conventional Loan Myths, Debunked
Myth 1: You Need 20% Down
False. As little as 3% through HomeReady, Home Possible, or Conventional 97. 20% eliminates PMI, it is not a requirement to get the loan.
Myth 2: PMI Never Goes Away
False. Federal law requires your lender to automatically cancel PMI at 78% LTV. You can request it at 80%. FHA MIP, by contrast, stays for the life of the loan in most cases.
Myth 3: You Need a 740 Credit Score to Qualify
False. Minimum is 620. A 740+ score gets you the best rates and lowest PMI, that is why the number floats around. But 620 to 739 borrowers qualify every day.
Myth 4: FHA Is Always Cheaper Than Conventional
False. With a 700+ credit score, conventional frequently has a lower total investment, especially factoring in FHA 1.75% upfront MIP and lifetime MIP payments. Run both scenarios before deciding.
Checklist: Is a Conventional Loan Right for You?
- My credit score is 620 or higher
- I can put at least 3% to 5% down (or 20% to avoid PMI)
- My DTI ratio is below 43% (or I have compensating factors)
- I have stable, documented income history (2+ years)
- I want mortgage insurance that goes away as I build equity
- I am buying a primary home, second home, or investment property
- I do not qualify for VA loan benefits
- I want to avoid FHA upfront 1.75% mortgage insurance fee
Frequently Asked Questions
What credit score do I need for a conventional loan in 2026?
The minimum is 620. A score of 740 or higher qualifies you for the best rates and lowest PMI. Between 620 and 739, you still qualify, terms just are not as sharp.
How much do I need for a down payment?
As little as 3% through HomeReady, Home Possible, or Conventional 97. Standard minimum is 5%. 20% eliminates PMI. Gift funds can cover the entire down payment on eligible programs.
How do I get rid of PMI?
Request cancellation at 80% LTV, automatic removal kicks in at 78% LTV by law, and by the loan midpoint (month 180 on a 30-year) PMI must be removed regardless. Home appreciation can also qualify you for early removal via a new appraisal.
What are the 2026 conventional loan limits?
$832,750 baseline (most counties), $1,249,125 ceiling (high-cost areas and Alaska, Hawaii, Guam, and USVI). Above those limits is jumbo territory.
Can I buy an investment property with a conventional loan?
Yes, and this is a key advantage over VA and FHA. Typically requires 15% down for multi-unit investment properties. Rates and requirements are higher for non-primary properties.
Is a conventional loan better than FHA if I have a 700+ credit score?
Often yes. PMI rates are lower at 700+, you skip FHA 1.75% upfront MIP, and PMI is removable. Run both scenarios, but strong-credit borrowers frequently save thousands going conventional.
I am a veteran with great credit. Should I still consider VA over conventional?
Yes, absolutely. Even with strong credit, VA zero mortgage insurance and competitive rates can save tens of thousands over the life of the loan. The main reasons to go conventional as a veteran: buying a second home, investment property, or preserving VA entitlement for a future purchase.
Your Next Step
A conventional loan is not always the answer, but for the right buyer, it is often the smartest path to homeownership with the lowest long-term investment.
I am Tim Stacey with Stacey Solutions. I work with multiple lenders as a wholesale mortgage broker to find the program that actually fits your situation. Give me a call at 707-290-2899 or reach out at Tim@staceysolutions.net.