Conventional Loans Explained: Requirements, Types, and When They Win

Conventional loans are not backed by a government agency; most follow Fannie Mae and Freddie Mac guidelines. They are the most common loan type and often a strong option for buyers with good credit.

Credit score: Fannie Mae's automated underwriting dropped its fixed 620 minimum in November 2025, but many lenders still look for about 620, and the best pricing usually goes to scores of 780 and up. Down payment: as low as 3% on some programs (when at least one borrower is a first-time buyer, or through HomeReady and Home Possible, which have income limits), with 5% common otherwise. DTI (debt-to-income ratio): Fannie Mae's automated system can accept up to 50%. The smallest down payment and best pricing are for a primary residence.

If you put less than 20% down, you pay PMI (private mortgage insurance). Unlike FHA, conventional PMI ends. Under the federal Homeowners Protection Act, you can ask your servicer in writing to cancel it once your balance reaches 80% of the home's original value (generally the lower of the price or appraised value) if you meet the servicer's conditions, and it ends automatically when your balance is scheduled to reach 78%. For strong-credit buyers, PMI is often cheaper than FHA mortgage insurance.

Conforming loans meet Fannie Mae and Freddie Mac guidelines and fall within limits the FHFA sets yearly: for 2026, $832,750 for one unit in most counties and up to $1,249,125 in high-cost areas, including much of coastal California. Check your county on the FHFA website. Non-conforming (jumbo) loans exceed these limits and usually have stricter requirements.

• ✓Conventional loans allow as little as 3% down on some programs
• ✓PMI is cancelable — request removal at 80% of the original value; it ends automatically at 78%
• ✓Buyers with strong credit often pay less with conventional than FHA
• ✓Conforming loan limits vary by county, and many California counties have higher limits