What Is a Conventional Loan?
A conventional loan is any mortgage not insured or guaranteed by a government agency. Most conventional loans are "conforming" — meaning they meet Fannie Mae and Freddie Mac purchase guidelines and fall within established loan limits. They account for roughly 70% of all home purchase loans in the U.S. and remain the preferred choice for buyers with solid credit and stable income in 2026.
Conventional Loan Limits for 2026
The FHFA updates conforming loan limits annually. For 2026:
- Standard loan limit (most of the U.S.): $806,500 for a single-family home
- High-cost area limit: Up to $1,209,750 in designated high-cost markets (parts of California, New York, Colorado, Hawaii, and other expensive metros)
Loans above these thresholds require jumbo financing, which typically has stricter requirements and higher rates.
Credit Score Requirements
Minimum credit score: 620. Borrowers near the minimum should expect higher rates and may face stricter requirements. The best rates start at 740+. The difference between a 680 and a 760 score can translate to a 0.5%–1% rate difference — on a $400,000 loan, that means tens of thousands of dollars in additional interest over 30 years.
- 760+ — Best available rates, maximum flexibility
- 720–759 — Excellent rates with minimal adjustments
- 680–719 — Good rates with modest adjustments
- 640–679 — Higher rates; may face stricter DTI or reserve requirements
- 620–639 — Minimum threshold; notably higher rates and limited options
Down Payment Requirements
Conventional loans start at just 3% down for qualified buyers through programs like Fannie Mae HomeReady, Freddie Mac Home Possible, and the standard Conventional 97. At 5–10% down, PMI costs drop meaningfully. At 20% down, you eliminate private mortgage insurance entirely — saving $100–$300+/month on a typical loan.
Private Mortgage Insurance (PMI)
If you put less than 20% down, you'll pay PMI — typically 0.2%–2% of the loan amount annually. On a $400,000 loan, that's $800–$8,000/year. The key advantage over FHA: conventional PMI is cancellable once you reach 20% equity, either through payments or home appreciation. By law, lenders must automatically cancel PMI at 78% loan-to-value.
Debt-to-Income (DTI) Ratio Requirements
Your DTI is the percentage of gross monthly income going to debt payments. Conventional lenders prefer 36–43%, with a maximum of 45% (up to 50% with strong compensating factors). DTI is calculated two ways: front-end (housing costs only, preferred below 28–31%) and back-end (all debts, the primary metric lenders focus on).
Employment and Income Requirements
W-2 employees need two years of employment history, recent pay stubs, two years of W-2s, and tax returns. Self-employed borrowers need two years of personal and business tax returns, a year-to-date profit and loss statement, and sometimes 12–24 months of bank statements. Self-employed income is typically averaged from net income on tax returns — which may be lower than actual take-home pay.
Asset and Reserve Requirements
Most conventional loans require 2 months of PITI reserves (principal, interest, taxes, insurance). Investment properties and multi-unit purchases may require 6+ months. Assets must be "seasoned" — in your account for at least 60 days — with large unexplained deposits requiring documentation.
Conventional vs. FHA Loan: Which Is Right for You?
Choose conventional if you have a credit score of 660+ and can put at least 5–10% down. The ability to cancel PMI makes conventional the better long-term choice for most qualifying buyers. Choose FHA if your credit score is below 660, your DTI is elevated, or you've had recent financial events (bankruptcy, foreclosure) that temporarily disqualify you from conventional lending.
How to Improve Your Conventional Loan Eligibility
- Raise your credit score — Pay revolving balances below 30% utilization; dispute credit report errors; avoid new accounts 3–6 months before applying
- Lower your DTI — Pay down installment loans and credit card balances; avoid new debt
- Save a larger down payment — Moving from 3% to 10% lowers your rate, payment, and PMI costs
- Build employment history — Two years of self-employment income is the standard lenders prefer
The Bottom Line
A conventional loan in 2026 is an excellent choice for buyers with solid credit, manageable debt, and stable income. With loan limits at $806,500, down payment options starting at 3%, and the ability to cancel mortgage insurance at 20% equity, conventional financing offers flexibility and long-term value that government-backed loans often can't match. Know your numbers before you apply — and you'll be positioned for the best rates and a smooth path to the closing table.