Reviewed by the Editorial Team · Updated October 18, 2026 · 9 min read
A conventional loan is a mortgage that no government agency insures or guarantees, and most follow Fannie Mae and Freddie Mac rules. Most lenders want a credit score of at least 620 and accept as little as 3% down, with PMI below 20% down that ends as your equity grows.
Key takeaways
A conventional loan has no government backing and usually follows Fannie Mae and Freddie Mac rules, with a conforming limit of $832,750 in most areas.
Most lenders want a credit score of at least 620 and a debt-to-income ratio near 45%, and accept as little as 3% down.
Below 20% down you pay PMI, $146–$475 a month on a 5% down loan on a $400,000 home, set mostly by credit score.
You can ask to drop PMI at 80% of the original value and it ends automatically at 78%, which is year 12 on 5% down in the example.
Min. credit score
Most lenders: 620
Down payment
As little as 3%
Mortgage insurance
PMI under 20% down, then it ends
Loan limit
$832,750, up to $1,249,125
30-year fixed average7.18%Freddie Mac PMMS · Nov 5, 2026.
PMI ends automatically, 5% downYear 12On a $400,000 home with no extra payments. Every down payment ↓
How a conventional loan works
A conventional loan is any mortgage outside the government programs: no FHA insurance, VA guarantee or USDA backing. Most are conforming loans, meaning they meet Fannie Mae and Freddie Mac guidelines and fit under a size limit, so lenders can sell them.
Backing: private lenders and insurers, not FHA, VA or USDA
Down payment: as little as 3%; PMI applies below 20%
Pricing: set by credit score, down payment and how you use the home
Rate and term: fixed or adjustable, usually 15 or 30 years
Underwriting runs through Fannie Mae's Desktop Underwriter or Freddie Mac's Loan Product Advisor, which weigh credit, income, assets and debts together. A strength in one area can offset a weakness in another.
$832,750 to $1,249,125, in high-cost counties only
Conforming conventional
The same guidelines, with a county-specific limit
Above your county's limit
Jumbo (nonconforming conventional)
Each lender's own guidelines
Low-down-payment programs
Fannie Mae's HomeReady and Freddie Mac's Home Possible allow 3% down for borrowers within area income limits, often with reduced PMI coverage. Fannie Mae also offers a standard option at the same 3% for first-time buyers.
What a conventional loan costs and when PMI ends
Conventional pricing depends on your score and down payment, so the table fixes a $400,000 home and changes only the down payment. It uses Freddie Mac's 30-year average of 7.18% (Nov 5, 2026) as the benchmark; your own rate will sit above or below it.
Worked exampleWhen PMI ends on a $400,000 home at 7.18%
What a conventional loan costs and when PMI ends
Down payment
Loan
Monthly P&I
PMI removableon request at 80%
PMI endsautomatically at 78%
3% ($12,000)
$388,000
$2,628
Year 12
Year 13
5% ($20,000)
$380,000
$2,574
Year 11
Year 12
10% ($40,000)
$360,000
$2,439
Year 9
Year 10
20% ($80,000)
$320,000
$2,168
No PMI
—
PMI on the 5% down loan$146–$475a month at 0.46%–1.5% a year — set mostly by your credit score
PMI ends automatically, 5% downYear 12on the original schedule — extra principal payments get you there sooner
Rate: Freddie Mac PMMS 30-year average 7.18% (Nov 5, 2026), the benchmark for conventional conforming loans. Removal years follow the original amortization schedule and the original home value, as the Homeowners Protection Act uses. Taxes, insurance and PMI are not in the P&I column. Price your PMI
Down payment sets the PMI clock. Insurance ends in year 13 on 3% down, year 12 on 5% down and year 10 on 10% down; at 20% down there is none. These dates follow the original schedule and original home value, as the Homeowners Protection Act sets them.
On the 5% down loan, PMI costs $146–$475 a month, or 0.46%–1.5% of the loan a year. Credit score sets most of that spread; the PMI cost reference shows what else moves the rate.
Ask at 80%, don't wait for 78%
Once your balance reaches 80% of the original value (year 11 on 5% down), ask your servicer in writing to drop PMI. Extra principal payments bring that date forward, while the automatic 78% cutoff stays on the original schedule.
Price adjustments that never show up as a fee
Fannie Mae and Freddie Mac charge lenders loan-level price adjustments, and lenders pass them on as a higher rate or as points. They rarely appear as a labeled fee, so you see them only in the quote. Four things move the price:
Credit score: lower tiers carry bigger adjustments and costlier PMI
Down payment: thinner equity moves the loan into a pricier tier
Lender-paid PMI: no monthly premium, but a higher rate that usually stays
Property use: second homes and rentals price higher than a primary home
When a conventional loan goes wrong
Most conventional-loan surprises come from pricing and insurance terms that shift between the first quote and closing. These four deserve a second look before you lock a rate:
Price adjustments: a lower score or higher loan-to-value raises your rate or points
Score-priced PMI: $146–$475 a month on the 5% down loan
Low appraisal: a lower value raises your loan-to-value and can raise PMI
Conditional removal: cancelling PMI needs a clean payment record and sometimes proof of value
Under the Homeowners Protection Act, your servicer must grant a written request to cancel PMI at 80% of the original value if you are current and have a good payment history. It can also ask for proof the value has not fallen, and it must end PMI on its own at 78%.
Before you lock
Ask the lender for a PMI quote at your exact score, whether lender-paid PMI is offered, and how the servicer handles removal requests. Then put the date your balance hits 80% of the original value on your calendar.
Conventional vs. FHA vs. jumbo loans
These three loans differ most in who sets the rules, how mortgage insurance behaves and how large a loan each allows. Credit score and down payment decide which one is cheapest for you.
Conventional, FHA and jumbo loans side by side
Conventional vs. FHA vs. jumbo loans
Conventional
FHA
Jumbo
Minimum credit score
620 at most lenders
580 with 3.5% down; 500 with 10% down
700 or higher; best pricing from 740
Minimum down payment
As little as 3%
3.5%
10–20%
Mortgage insurance
PMI below 20% down, priced mostly by credit score
Upfront 1.75% plus an annual premium
Lender-specific; often replaced by a larger down payment
When insurance ends
Request at 80% of original value; automatic at 78%
Life of the loan with under 10% down; 11 years with 10% or more
Depends on the lender's policy
Loan size
Up to $832,750, or $1,249,125 in high-cost areas
County limits from $541,287 to $1,249,125
Above your county's conforming limit
Property types
Primary home, second home, investment property
Primary residence only
Primary and second homes; investment property at some lenders
For the full FHA head-to-head, read the FHA vs. conventional loan guide. Jumbo rules vary most by lender, so ask for written requirements before relying on that column.
Who a conventional loan fits
A conventional loan suits buyers whose credit and savings clear the basics and who want mortgage insurance that eventually ends. It also covers more property types than FHA.
Credit comfortably above the 620 minimum
Savings for 3% or more down plus closing costs
A plan to stay long enough for PMI to end
A second home or rental, which FHA does not finance
Skip it if your score sits near the minimum and you have little saved. FHA often prices that file better because conventional PMI and rates climb as scores fall, so compare both quotes before choosing.
Conventional loans: pros and cons
Pros
PMI ends instead of lasting the life of the loan
Down payments from 3%, with no PMI at 20% down
Fixed or adjustable rates across a range of terms
Financing for second homes and rental properties
Cons
Higher credit-score floor than FHA
PMI and rate adjustments climb as your score falls
Loan size capped by the conforming limit
Less debt-to-income flexibility than FHA
What underwriters check first
Underwriters start with a credit score of at least 620, a debt-to-income ratio near 45% and a down payment of 3% or more. Automated approval can stretch DTI to 50% when credit, savings or reserves are strong.
A higher score and a larger down payment each lower your rate and PMI. To see which payment your income supports, use the home affordability calculator.
Requirements at a glance
Credit score of 620 or higher at most lenders, with better pricing above it
Down payment of 3% or more; 20% down avoids PMI
Debt-to-income ratio near 45%, up to 50% with automated approval
Loan amount within your county's conforming limit, $832,750 in most areas
Private mortgage insurance (PMI) if you put down less than 20%
Documented income and assets for closing costs and reserves
A conventional loan is a mortgage that no government agency insures or guarantees, unlike FHA, VA or USDA loans. Most are conforming loans that follow Fannie Mae and Freddie Mac guidelines and stay under the conforming limit.
A loan above that limit is a jumbo loan, which is still conventional but follows each lender's own rules.
Do you have to put 20% down on a conventional loan?
No — you can put down as little as 3%, and any amount under 20% adds private mortgage insurance (PMI). On the $400,000 example with 5% down, PMI runs $146–$475 a month and ends in year 12.
Putting 20% down avoids PMI entirely and also shrinks the loan and your payment.
Which is better, conventional or FHA?
It depends on your credit and savings. Conventional usually costs less with a strong score and a solid down payment, because PMI ends while FHA mortgage insurance lasts the life of the loan on small down payments.
FHA can fit lower scores or thinner savings better, so compare the full monthly payment on both.
How difficult is it to get a conventional loan?
It is harder than FHA for weaker credit but routine for well-qualified buyers. Most lenders want a score of at least 620, a debt-to-income ratio near 45% and documented income, and automated approval can stretch DTI to 50%.
The file gets harder as your score drops, your down payment shrinks or your debts rise.
What disqualifies you from a conventional loan?
The usual reasons are a credit score below 620, a debt-to-income ratio over the lender's limit, and a loan above the conforming limit, which makes it a jumbo loan.
A recent bankruptcy, foreclosure or other major credit event can also mean a waiting period, and income you cannot document ends many files.
How much income do I need to qualify for a $250,000 mortgage?
There is no single figure; it depends on your payment and other debts. Add principal, interest, taxes, insurance and any PMI, then add your monthly debts.
Divide that total by gross monthly income and aim near 45%, or up to 50% with automated approval. The home affordability calculator runs this for your numbers.
When does PMI go away on a conventional loan?
You can ask to cancel when your balance reaches 80% of the original value, and under the Homeowners Protection Act the servicer must end PMI automatically at 78% if you are current.
In the $400,000 example with 5% down, that is year 11 to request and year 12 automatically.
What is the conforming loan limit for 2026?
The 2026 baseline limit for a one-unit home is $832,750 in most counties, rising to $1,249,125 in the highest-cost areas. The Federal Housing Finance Agency sets it each year, and the limits are higher for two- to four-unit properties. A loan above your county's limit is a jumbo loan.
Can I use a conventional loan for a second home or rental?
Yes — unlike FHA, which requires you to live in the home, conventional loans can finance second homes and investment properties as well as primary residences.
The rules tighten with the use: expect a larger down payment, a higher rate and more cash reserves for a rental than for a home you occupy.
This guide is general information, not a lending decision. Program rules and dollar limits change — verify current figures with a licensed lender and confirm licensing at NMLS Consumer Access. See all loan types.
Nothing matches that. Try “refinance”, “FHA”, “Texas”, “Rocket” or “PMI”.