Reviewed by the Editorial Team · Updated July 10, 2026 · 6 min read
A conventional loan follows Fannie Mae and Freddie Mac rules rather than a government guarantee, with a typical floor of 620 and down payments starting at 3% for first-time buyers — and its mortgage insurance cancels, unlike FHA's.
Key takeaways
Conventional loans follow Fannie Mae and Freddie Mac guidelines rather than a government guarantee, with down payments starting at 3% for first-timers.
Private mortgage insurance is required below 20% down, but unlike FHA it cancels automatically once equity reaches that threshold.
A 620 score opens the door, though stronger credit unlocks meaningfully lower PMI costs and interest rates.
It's the more flexible route for second homes and investment properties, options FHA and USDA don't offer at all.
Min. down payment
3% first-time, 5% standard
Min. credit score
620 typical
Mortgage insurance
Required under 20% down, but cancels
Best for
660+ score buyers with some savings
Today's 30-year fixed rate6.49%avg · Freddie Mac PMMS · as of Jul 9, 2026
Principal & interest only, 30-year term at 6.49%. Taxes, insurance and any mortgage insurance are extra. See today's rates →
How a conventional loan works
A conventional loan isn't insured by a government agency. It has to meet underwriting standards set by Fannie Mae and Freddie Mac, and the loan amount must fall at or under the conforming loan limit for your area.
3% down for first-time buyers through Fannie Mae HomeReady or Freddie Mac Home Possible
5% down for buyers who don't qualify for those income-based programs
20% down avoids mortgage insurance altogether
Minimum credit score around 620, with better pricing near 680-700
HomeReady and Home Possible
Both programs let income-qualified and first-time buyers put down as little as 3% with reduced mortgage-insurance coverage. They use the same conforming underwriting as any other conventional loan — just a lower entry bar.
Loan amount within the conforming limit for your county
The PMI trade-off
Put down less than 20% and the lender requires private mortgage insurance, billed as part of your monthly payment. The cost varies with your credit score and down payment size.
Unlike FHA insurance, PMI is temporary. You can request removal once you reach 20% equity, and it terminates automatically at 78% loan-to-value regardless.
Track your loan balance against your original purchase price
Request PMI removal in writing once you hit 80% loan-to-value
PMI cancels automatically at 78% LTV even without a request
A new appraisal showing 20% equity can speed removal up
The FHA difference
Conventional PMI cancels once you build enough equity. FHA's annual premium often lasts the life of the loan at the minimum down payment.
Who a conventional loan fits
Conventional works best once your credit clears the low-600s and you have at least a little cash saved beyond the down payment itself.
A credit score of about 660 or higher
At least 3-5% saved for a down payment
Wants insurance that cancels instead of running for the life of the loan
Plans to reach 20% equity within a few years
Below roughly 620, an FHA loan is usually the easier approval — but once you qualify for both, conventional typically wins on total cost.
Conventional Loans: pros and cons
Pros
PMI cancels automatically at 20% equity
Down payments as low as 3% for first-time buyers
No upfront mortgage insurance premium
Available for second homes and investment properties
Cons
Stricter credit score minimum than FHA
PMI costs rise with lower credit scores
Higher down payment needed with weaker credit
Conforming loan limits cap the loan amount
Requirements at a glance
620+ credit score (varies by lender and program)
3% down through HomeReady/Home Possible for first-time buyers, 5% otherwise
Debt-to-income generally at or under 45-50% with strong compensating factors
Loan amount at or under the conforming loan limit for your area
Private mortgage insurance if putting down less than 20%
Steady, documented income and assets for closing and reserves
What credit score do I need for a conventional loan?
Most lenders require at least 620, the floor built into Fannie Mae and Freddie Mac's automated underwriting.
Score matters more here than with FHA — it directly lowers both your rate and your PMI cost, so buyers near 700+ typically see meaningfully better terms.
Can I put down less than 20% on a conventional loan?
Yes — as little as 3% through Fannie Mae HomeReady or Freddie Mac Home Possible for first-time and income-qualified buyers, or 5% for most other borrowers. Anything under 20% down requires private mortgage insurance until you build enough equity.
Is conventional or FHA better?
It depends on credit. Below about 660, FHA usually wins on rate and approval odds. Above 680 with at least 5% down, conventional usually costs less overall because its PMI is typically cheaper and cancels at 20% equity instead of lasting the life of the loan.
What is the difference between an FHA and a conventional loan?
The core differences are credit score, down payment, and mortgage insurance. Conventional loans typically require a 620+ score versus FHA's 580, but conventional PMI cancels at 20% equity while FHA insurance often lasts the loan's life.
Conventional loans also follow Fannie Mae/Freddie Mac limits rather than FHA's county-based limits. html">FHA loans here.
How much income do you need to qualify for a $400,000 mortgage?
It depends on your down payment, debts, and rate rather than one fixed figure — conventional guidelines commonly cap debt-to-income around 45-50%.
A buyer with few other monthly debts generally needs less income than one carrying a car loan or student debt at the same purchase price. html">mortgage calculator to model your scenario.
How much is a $500,000 mortgage at 6% interest?
On a 30-year term, principal and interest on a $500,000 loan at 6% runs roughly $3,000 a month, before taxes, insurance, and any PMI are added. html">mortgage calculator.
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.
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