Conventional Loan Requirements 2026: Credit Score, Down Payment, and Limits

The Bottom Line Up Front

Conventional loans are the default mortgage for borrowers with 620+ credit and at least 3% down. PMI cancellation is the structural advantage that compounds over time — every month after cancellation is money you keep that FHA borrowers are still paying. The real cost driver is not the rate — it is LLPAs, which add 0.125%–2.75% to your rate based on credit score, LTV, and property type. A 740 score at 80% LTV pays almost no LLPA; a 660 at 95% LTV pays the maximum.

Minimum Credit Score and How It Affects Pricing

The floor is 620, but credit score is the single biggest pricing variable in conventional lending. Fannie Mae and Freddie Mac use loan-level pricing adjustments that stack based on your credit tier, LTV ratio, and property type.

A borrower at 760 with 20% down pays essentially no LLPA — the base rate is clean. A borrower at 640 with 5% down pays LLPAs that can add 1.5–2.75% in fee or 0.375–0.75% to the rate. This pricing gap is why conventional is not automatically the best choice for every borrower.

Down Payment Options: 3% to 20% and Beyond

Conventional allows down payments from 3% to any amount. The key threshold is 20%, where PMI drops off entirely. Between 3% and 19.99%, you pay PMI — but it cancels automatically at 78% LTV or by lender request at 80%.

Three programs offer 3% down: Conventional 97 (no income limit), Fannie Mae HomeReady (80% AMI income cap), and Freddie Mac Home Possible (80% AMI income cap). HomeReady and Home Possible also offer reduced PMI rates for eligible borrowers, making them cheaper than standard Conventional 97 when you qualify.

The down payment threshold also determines seller concession limits on conventional loans. At 90% LTV or less (10%+ down), sellers can contribute up to 9% of the purchase price toward the buyer’s closing costs. Between 75% and 90% LTV, the cap is 6%. Above 90% LTV (less than 10% down), seller concessions are limited to 3%. This means a 3% down borrower can receive at most 3% in seller-paid closing costs, while a 10% down borrower can receive up to 9% — a meaningful difference in markets where sellers are willing to contribute. Gift funds from family members can cover the entire down payment on all conventional programs, though the lender requires a gift letter confirming no repayment is expected.

Debt-to-Income Ratio Requirements

The standard DTI ceiling is 45%. Fannie Mae’s Desktop Underwriter and Freddie Mac’s Loan Product Advisor can approve ratios up to 50% when the file has strong compensating factors — high credit, significant reserves, or low LTV.

Both front-end and back-end ratios matter, but the back-end ratio is the binding constraint for most borrowers. Student loans on income-driven repayment plans use 0.5% of the outstanding balance as the monthly payment for conventional qualifying — not the actual $0 payment amount.

Private Mortgage Insurance: Cost and Cancellation

PMI is required on conventional loans with less than 20% down. Monthly PMI typically costs 0.2%–1.5% of the loan amount annually, depending on credit score and LTV. The critical advantage over FHA: PMI cancels.

Automatic cancellation happens when the loan balance reaches 78% of the original value. You can request cancellation at 80% LTV based on original value, or earlier if the home has appreciated enough for a new appraisal to show 80%+ equity. FHA charges annual MIP for the life of the loan when you put less than 10% down — PMI cancellation is conventional’s biggest structural advantage.

HomeReady and Home Possible: 3% Down for Lower-Income Borrowers

Fannie Mae’s HomeReady and Freddie Mac’s Home Possible programs allow 3% down on conventional loans with reduced PMI rates for borrowers earning at or below 80% of area median income. These are not separate loan products — they are conventional loans with enhanced pricing for income-eligible borrowers.

HomeReady allows income from non-borrower household members and boarder income to help qualify, which widens access for multigenerational households. Home Possible offers similar terms through Freddie Mac’s Loan Product Advisor. Both programs require homeownership education for at least one borrower, which can be completed online in a few hours. The reduced PMI rates on these programs can save $40–$80 per month compared to standard Conventional 97 PMI on the same loan amount and credit profile.

2026 Conforming Loan Limits

The FHFA raised 2026 conforming limits to $832,750 for a single-unit property in most U.S. counties. High-cost areas go up to $1,249,125. Loans above these limits are jumbo and follow different, usually stricter, underwriting guidelines.

Multi-unit limits scale: $1,066,250 for 2-unit, $1,288,800 for 3-unit, and $1,601,750 for 4-unit properties. Alaska, Hawaii, Guam, and the U.S. Virgin Islands get 50% higher baselines. Check the FHFA lookup tool for your specific county limit.

Conforming vs Non-Conforming vs Jumbo

Every conventional loan falls into one of two categories based on size: conforming or non-conforming. Conforming loans meet the dollar limits set by FHFA and are purchased by Fannie Mae or Freddie Mac, which keeps rates lower and guidelines standardized. Non-conforming loans exceed those limits and are either jumbo loans held in lender portfolio or sold to private investors.

The distinction matters for pricing and availability. Conforming loans benefit from the secondary market liquidity that Fannie and Freddie provide — lenders can sell them easily, which translates to lower rates for borrowers. Jumbo loans require the lender to either hold the loan or find a private buyer, which typically means higher rates, larger down payments (10–20% minimum), lower DTI caps (usually 43% hard ceiling), and higher credit requirements (680–720+ depending on the lender). The conforming limit in 2026 is $832,750 for most counties, with high-cost areas up to $1,249,125. A borrower at $840,000 in a standard county crosses into jumbo territory and faces a fundamentally different underwriting process.

Conventional vs FHA vs VA vs USDA: When Each Program Wins

The right mortgage program depends on your credit score, down payment, military eligibility, and property location. Conventional wins on long-term cost for borrowers above 700 credit. FHA wins on access for lower credit scores. VA wins on total cost for eligible veterans. USDA wins on cash-to-close for rural and suburban buyers who meet income limits.

The crossover point between conventional and FHA depends almost entirely on credit score and holding period. Below 680, FHA usually produces a lower monthly payment because FHA’s flat MIP pricing does not penalize low scores the way conventional LLPAs do. Above 700 with 5% or more down, conventional wins because PMI cancels and LLPA costs are manageable. VA is the strongest program for eligible veterans at any credit level — zero down, no monthly MI, and competitive rates make it cheaper than every alternative regardless of score. USDA offers zero down with lower fees than FHA, but the geographic and income restrictions limit who can use it.

The Application Process

Conventional loan processing typically takes 30–45 days from application to closing. The appraisal is ordered by the lender through an AMC and usually completed within 5–10 business days.

Documentation requirements are standard: two years of W-2s or tax returns, two months of bank statements, recent pay stubs, and asset verification. Self-employed borrowers need two years of personal and business tax returns plus a year-to-date profit and loss statement.

Investment Property and Second Home Financing

Conventional is the only standard mortgage program that finances investment properties and second homes. FHA, VA, and USDA are restricted to primary residences. This gives conventional a structural advantage for borrowers building rental portfolios or purchasing vacation properties.

Second homes require a minimum 10% down payment, and the property must be in a location that makes sense as a genuine second residence — not a rental. Investment properties require 15% down for a single unit and 20–25% for 2–4 units. LLPAs on investment properties add 1.125–4.125% in pricing adjustments depending on credit and LTV, making the effective rate significantly higher than primary residence financing. Lenders also require 6 months of cash reserves covering both the investment property mortgage and the borrower’s primary residence payment. Rental income from the property can offset the DTI impact, but lenders typically discount it by 25% to account for vacancy and maintenance.

Can You Get Manual Underwriting on a Conventional Loan?

Manual underwriting on conventional is rare. When Desktop Underwriter or Loan Product Advisor returns a Refer or Caution, most lenders simply decline the file rather than manually underwrite it. Conventional manual underwriting follows Fannie Mae Selling Guide Chapter B3 or Freddie Mac’s equivalent, and the requirements are significantly stricter than automated approval: maximum 45% DTI with no exceptions, 12 months of verified housing payment history, documented reserves, and compensating factors for any risk layer. In practice, borrowers who cannot get an automated conventional approval are almost always better served by FHA, where manual underwriting is more established and lender participation is higher. The exception is borrowers with non-traditional credit — no FICO score but strong alternative tradelines — where Fannie Mae’s manual path provides a documented route to conventional financing that FHA does not offer.

The Bottom Line

Conventional is the right loan for most borrowers with 620+ credit and at least 3% down. PMI cancellation is the structural advantage that compounds over time. The pricing gap between a 660 and a 740 credit score is real and significant — run the numbers at your actual score before assuming conventional is cheapest. Compare at least three lenders to find who absorbs the most LLPA cost on your specific profile.

Frequently Asked Questions

Last updated: April 18, 2026 · Reviewed by The Lenders Network Editorial Team