Conventional loans are the most common mortgage in the United States — and for good reason. They offer flexible terms, competitive rates, and the ability to drop mortgage insurance once you build enough equity. If you have decent credit and a little cash for a down payment, a conventional loan is often the best deal you can get.
Curious whether a conventional loan fits your budget? Run your numbers through our free home affordability calculator — it models conventional loans with PMI so you see the real monthly cost from the start.
What is a conventional loan?
A conventional loan is any mortgage that is not insured or guaranteed by the federal government. Unlike FHA, VA, or USDA loans, conventional mortgages are issued entirely by private lenders (banks, credit unions, mortgage companies) without government backing.
Most conventional loans follow guidelines set by Fannie Mae and Freddie Mac — two government-sponsored enterprises that buy mortgages from lenders. Loans that follow those guidelines are called “conforming.” Loans that exceed conforming limits are called “jumbo” loans.
Conventional loan requirements at a glance
| Requirement | Minimum | Sweet spot |
|---|---|---|
| Credit score | 620 | 740+ |
| Down payment | 3% (Conventional 97) | 20%+ |
| DTI ratio | 45–50% max | 36% or lower |
| Employment history | 2 years | Same industry |
| Cash reserves | 0–2 months | 6+ months |
| Loan limits (2026) | $766,550 most counties | N/A |
Down payment options: from 3% to 20%+
One of the biggest myths about conventional loans is that you need 20% down. You don’t. Here are the real options:
Conventional 97 (3% down)
The Conventional 97 program allows first-time buyers to put just 3% down. No income limits, no location restrictions. You’ll pay PMI until you hit 20% equity, but it drops off automatically. This is the go-to option for first-time buyers who can’t swing 5%.
HomeReady and Home Possible (3% down)
Fannie Mae’s HomeReady and Freddie Mac’s Home Possible programs allow 3% down with income limits (usually 80% of your area’s median income). Both offer reduced PMI rates compared to standard conventional loans.
Standard conventional (5% down)
The traditional entry point. 5% down, PMI required until 20% equity, no income cap. Great for move-up buyers or anyone with slightly more savings.
10% down
10% down gets you slightly lower PMI rates and sometimes a better interest rate. It’s a common choice for buyers who can afford more than the minimum but don’t have 20%.
20%+ down
The classic goal. With 20% down, no PMI, you get the best rates, and you start with instant equity. Not required, but always the best deal if you can swing it without draining your emergency fund.
Learn more in our guide on how much down payment you need.
Credit score requirements
Most conventional lenders require a minimum FICO score of 620. But that’s just the entry point. Here’s how credit scores actually affect conventional loans:
- 620–679 — Higher rates, higher PMI. You’ll qualify, but you’re paying a premium.
- 680–739 — Solid range. Rates and PMI become more competitive.
- 740+ — Best-tier pricing. Lenders stop penalizing you.
- 760+ — Marginal additional discount at a few lenders.
If your credit is below 620, an FHA loan is usually your better option. Learn more about how credit scores affect mortgage approval in our credit score guide.
Private mortgage insurance (PMI)
If your down payment is less than 20% on a conventional loan, you’ll pay private mortgage insurance. PMI protects the lender if you default. It typically costs 0.3% to 1.5% of the loan amount per year, paid monthly.
The best part of conventional PMI vs FHA’s MIP: you can cancel PMI once you reach 20% equity. Federal law requires automatic cancellation at 78% LTV, and you can request cancellation at 80% LTV. Compare that to FHA mortgage insurance, which often sticks around for the life of the loan.
DTI (debt-to-income) requirements
Most conventional lenders cap your debt-to-income ratio at 45%, though automated underwriting can push it to 50% for borrowers with strong credit, cash reserves, and large down payments.
The sweet spot for comfortable affordability is 36% DTI or lower — in line with the classic 28/36 rule. Anything higher and you’re stretching into risky territory.
Employment and income history
Conventional lenders want to see:
- Two years of stable employment (not necessarily the same job — career progression in the same field counts)
- Two years of W-2 income with consistent earnings
- Self-employed? Two years of tax returns showing stable net income
- Variable income? Two-year average for bonuses, commissions, and overtime
Job gaps are okay if you can explain them (school, medical leave, family care). Consistent income matters more than a perfect resume.
Conventional loan limits in 2026
For 2026, the conforming loan limit set by Fannie Mae and Freddie Mac is:
- $766,550 for a single-unit home in most counties
- Up to $1,149,825 in high-cost areas (parts of California, NYC, Washington D.C., Hawaii)
Loans above these limits are considered jumbo loans, which require stronger credit, larger down payments, and stricter underwriting.
Conventional vs FHA: which is better?
| Feature | Conventional | FHA |
|---|---|---|
| Minimum down payment | 3% | 3.5% |
| Minimum credit score | 620 | 500–580 |
| Mortgage insurance | PMI, cancellable at 80% LTV | MIP, often for life of loan |
| DTI max | 45–50% | 43–50% |
| Property condition | Standard appraisal | Strict FHA appraisal |
| Loan limits | Higher ($766,550+) | Lower (varies) |
| Best for | Credit 620+, want to drop MI | Credit under 620, smaller down |
The honest take: if your credit score is 640+ and you can put at least 5% down, conventional usually beats FHA on total monthly cost — especially once you factor in that FHA mortgage insurance often lasts forever while conventional PMI drops off.
If your credit is below 620 or you need 3.5% down with compensating factors, FHA is the winner. Run both scenarios through a lender before deciding.
Pros and cons of conventional loans
Pros ✅
- Lowest total cost for buyers with good credit
- PMI can be canceled at 80% LTV
- Higher loan limits than FHA
- Flexible property types (primary, second home, investment)
- Fewer property condition restrictions
- No upfront mortgage insurance premium
- Gift funds accepted for down payment
Cons ❌
- Stricter credit requirements (620 minimum)
- PMI required under 20% down (but cancellable)
- Less flexible on DTI than VA or FHA
- Harder for self-employed buyers with thin documentation
How to apply for a conventional loan
- Check your credit score. Pull your real FICO from myfico.com or your credit card app. Aim for 620+ minimum, 740+ for best rates.
- Calculate your budget. Use our affordability calculator to see what fits your income, debts, and down payment.
- Gather documents. Two years of W-2s or tax returns, recent pay stubs, bank statements, photo ID.
- Shop 3+ lenders. Rates and fees vary widely. Get Loan Estimates from at least three lenders within a 14-day window.
- Get pre-approved. A real pre-approval letter makes you a serious buyer.
- Make an offer and close. With pre-approval in hand, you’re ready to shop.
Loan types within the conventional umbrella
Fixed-rate conventional
Your interest rate stays the same for the entire loan term. Most common. Available in 10, 15, 20, and 30-year terms. Learn more in our 15 vs 30 year mortgage guide.
Adjustable-rate conventional (ARM)
Lower starting rate that adjusts after a fixed period (5, 7, or 10 years). Best for buyers who plan to sell or refinance before the fixed period ends.
Jumbo conventional
For loans above the conforming limit. Stricter requirements but still a conventional loan. Good for buyers in expensive markets.
Save more with Beycome
A typical 3% buyer agent commission is baked into every home’s price — and on a conventional loan, you finance it over 30 years with interest. When you buy with the Beycome buyer program, we rebate up to 2% of the purchase price back to you at closing. On a $500,000 home, that’s $10,000 — enough to make a meaningful dent in your down payment, PMI timeline, or closing costs.
See the full math in our affordability calculator.
Bottom line: conventional is the default for a reason
Conventional loans are the most flexible, most common, and for most borrowers, the most affordable mortgage option. They reward good credit, let you drop mortgage insurance over time, and offer more property flexibility than any other loan type. If you have at least a 620 credit score and 3% down, you should at least get a conventional quote before settling on anything else.
See what you can afford with a conventional loan. Run your numbers through the Beycome affordability calculator — it’s free, instant, and models every loan type.
Discover beycome title today!