Conventional Loan Guide
Conventional Loans: America's Most Common Mortgage
About 70% of U.S. mortgages are conventional — loans not backed by FHA, VA, or USDA. They reward strong credit with the lowest rates, drop PMI automatically at 80% equity, and finance loans up to $832,750 in most counties (higher in expensive metros). Here's how they work and how to know if one fits.
Today's 30-Yr Conv
5.99%
/ 6.1% APR
3% downConventional 97 minimum
620 FICOMinimum credit score
$832,7502026 conforming limit
What Makes a Loan "Conventional"
A conventional loan is any mortgage that's NOT government-backed (no FHA, VA, or USDA insurance). Instead, it conforms to Fannie Mae or Freddie Mac guidelines, the two government-sponsored enterprises that buy these loans from lenders. That secondary-market liquidity is why conventional rates stay competitive.
Not Government-Insured
No FHA mortgage insurance, no VA funding fee, no USDA guarantee fee. Private mortgage insurance only if you're below 20% equity — and PMI automatically drops at 78% LTV.
Conforming to Fannie/Freddie
Fannie Mae and Freddie Mac set the rules: max loan amount, credit standards, DTI ratios. Lenders sell these loans into the secondary market, which keeps your rate priced from a deep pool.
Rewards Strong Files
Better credit, lower LTV, stable income = lowest available rates. Conventional pricing has the tightest gradient between credit-score bands, so a 740 file gets meaningfully better terms than a 680.
Conventional Down Payment Options
You do NOT need 20% down on a conventional loan. There are four standard tiers, each with different trade-offs.
3%
Conventional 97
Lowest Entry
Fannie Mae's first-time buyer program. Minimum 620 FICO, primary residence only, up to $832,750 loan.
PMI required · drops at 78% LTV
5%
Standard Low-Down
Most Common Path
5% down works for any buyer with strong credit. Lower PMI than 3% down and more lender flexibility.
PMI required · drops at 78% LTV
10%
Mid-Range
Balanced
Sweet spot for buyers who saved 10%. PMI is meaningfully cheaper than at 3-5% down, and you build equity faster.
PMI required · drops at 78% LTV
20%+
No PMI
The Classic Choice
20% down eliminates PMI from day one. Lower monthly payment, stronger offer, no future PMI removal paperwork.
No PMI required · lowest monthly cost
Pro tip: Going from 3% to 5% down often saves you $80-$120/month in PMI on a $400K loan. Going from 10% to 20% saves another $120-$200/month. We model both at quote time so you see the exact trade-off in dollars.
2026 Conforming Loan Limits
A loan above the limit isn't conventional — it's a Jumbo, with different pricing and underwriting. Most U.S. counties use the baseline; high-cost metros (Bay Area, LA, NYC, DC) qualify for the ceiling.
Baseline (most U.S. counties)
$832,750
High-Cost Ceiling
$1,249,125
Loans above these limits are Jumbo and priced separately. We work both markets daily.
Credit Score & Pricing Tiers
Conventional loans are tightly priced by FICO band. Each tier change typically moves your rate 0.125-0.250%. Here's what the bands look like.
| FICO Range | Tier | What It Means |
|---|---|---|
| 760 & up | Best Pricing | Top-tier rate. Lowest available conventional pricing. |
| 740 – 759 | Best Pricing | Same top tier as 760+. Most reference rates assume this range. |
| 720 – 739 | Strong | +0.125% from the top tier. Still excellent pricing. |
| 700 – 719 | Strong | +0.125-0.25% from top. Solid mainstream pricing. |
| 680 – 699 | Good | +0.375% from top tier. PMI cost also rises here. |
| 660 – 679 | Good | +0.5% from top. Borrowers often save more switching to FHA. |
| 640 – 659 | Borderline | Conventional possible but pricing typically beaten by FHA at this score. |
| 620 – 639 | Borderline | Minimum conventional FICO. We'd usually recommend FHA at 580+ instead. |
Pricing assumes 80% LTV. Lower LTV (more down payment) improves pricing further; higher LTV adds PMI cost.
PMI: The Insurance That Goes Away
Private Mortgage Insurance protects the LENDER if you default. On a conventional loan, PMI is required when you put less than 20% down — and it automatically drops off when you reach 78% LTV. Here's what you need to know.
When PMI Is Required Required
- Any conventional loan above 80% LTV (less than 20% down)
- Stays on the loan until 78% LTV is reached
- Can request manual removal at 80% LTV with an appraisal
- Automatically removed by the lender at 78% LTV, no action needed
How Much PMI Costs Pricing
- Typically 0.20% to 1.50% of loan amount per year
- Depends on credit score, LTV, and loan type
- 740 FICO with 10% down: about 0.40% ($133/mo on $400K)
- 680 FICO with 5% down: about 0.85% ($283/mo on $400K)
- Tax-deductible in many cases (consult your CPA)
Getting PMI Removed Early Strategy
- Request removal once your balance reaches 80% of ORIGINAL value
- OR request removal when current value puts you at 80% LTV (needs new appraisal)
- Home appreciation counts — in hot markets you can hit 80% LTV in 2-3 years
- Refinancing also removes PMI if your equity grew
PMI vs FHA MIP Compare
- Conventional PMI drops automatically at 78% LTV
- FHA MIP often stays for the LIFE of the loan (if you put less than 10% down)
- This is the #1 reason strong-credit buyers choose conventional over FHA
- Refinancing from FHA to conventional is a common move once you have equity
Special Conventional Programs Worth Knowing
Beyond standard conventional, there are several subsidized programs aimed at first-time buyers and moderate-income borrowers.
Conventional 97
Fannie Mae's 3%-down program for first-time buyers (or those who haven't owned in 3 years). Lower MI rate than standard 3% down conventional.
Fannie Mae HomeReady
3% down with reduced PMI and discounted rate for borrowers earning 80% or less of area median income (AMI). Boarder income can count.
Freddie Mac Home Possible
Freddie's equivalent of HomeReady. 3-5% down, reduced PMI for borrowers up to 80% AMI. Co-borrower income counts even if they won't live in the home.
Standard Conventional
The mainstream 5-20% down conventional loan. No income caps, available for primary, second home, or investment property.
Conforming High-Balance
For loans between $832,750 and $1,249,125 in designated high-cost counties (LA, Bay Area, DC metro). Still conventional, slightly higher rate.
Conventional Investment
5-Unit-to-4 properties, 15-25% down depending on units. Rate is 0.625-0.875% higher than primary residence. Up to 10 financed properties.
Conventional vs. FHA vs. VA: Quick Comparison
The right loan depends on your file. Conventional rewards strong credit and equity; FHA and VA are looser on credit but have insurance built in.
| Factor | Conventional This Page | FHA | VA |
|---|---|---|---|
| Min down payment | 3% | 3.5% | 0% |
| Min FICO | 620 | 580 | ~580 (lender set) |
| Mortgage insurance | PMI — drops at 78% LTV | MIP for life of loan (if <10% down) | None (no MI) |
| Max loan amount | $832,750 (baseline) / $1,249,125 (high-cost) | $524,225 baseline / $1,249,125 high-cost | No max (with full VA entitlement) |
| Property types | Primary, 2nd home, investment | Primary only | Primary only (with some flexibility) |
| DTI ceiling | ~45-50% | ~57% with compensating factors | ~60% with compensating factors |
| Who's eligible | Anyone meeting credit/DTI | Anyone meeting credit/DTI | Veterans, active duty, eligible spouses |
| Upfront fee | None | 1.75% upfront MIP (financed) | VA funding fee 1.4-3.6% (financed) |
Estimate Your Conventional Loan Payment
Includes automatic PMI estimation if your down payment is below 20%. Rate auto-fills with today's published conventional rate.
Who Should Choose a Conventional Loan
Conventional is the right move for these specific situations. If you're outside these, FHA, VA, or Non-QM might be the better fit.
Strong Credit (700+)
Conventional pricing rewards top-tier FICO. Below ~680, FHA often beats conventional even with the upfront MIP.
You Have 5%+ Down
5% conventional with PMI is almost always cheaper monthly than FHA 3.5% with lifetime MIP, once you account for PMI removal.
Second Home or Investment
FHA and VA are primary-residence only. If you're buying a vacation home, rental, or investment property, conventional is required.
Plan to Build Equity Fast
If you'll hit 78-80% LTV within 4-6 years (via payments + appreciation), conventional's auto-PMI-drop saves thousands vs. FHA's lifetime MIP.
Higher Loan Amount
FHA limits are lower in most counties. If you need a loan between FHA's cap and $832,750 (or $1.25M in high-cost areas), conventional is the path.
Condo or PUD Purchase
Conventional has friendlier condo underwriting than FHA (FHA requires the entire HOA to be on its approved list). Most condo deals run conventional.
Conventional Loan FAQ
The questions every borrower asks before pulling the trigger.
Do I really not need 20% down for a conventional loan?
No. The "20% rule" is a holdover from before low-down conventional programs existed. Today, 3% down (Conventional 97) or 5% down is standard. The 20% threshold only matters because that's when PMI is no longer required. You still buy the home; you just pay PMI until you reach 80% equity.
How is PMI different from FHA MIP?
PMI (conventional) drops automatically when your loan-to-value reaches 78%. MIP (FHA) stays for the LIFE of the loan if you put down less than 10%. That difference can save you $25,000-$50,000 over a 30-year loan. It's the single biggest reason borrowers refinance from FHA into conventional once they've built equity.
What's the minimum credit score for a conventional loan?
620 is the official Fannie/Freddie floor. In practice, conventional pricing gets sharp at 660 and very sharp at 720+. Below 680, FHA often gives a better all-in cost — we'll model both for you and recommend whichever costs less long-term.
Can I use a conventional loan for an investment property?
Yes. Investment properties require 15% down for a single unit, 25% for 2-4 units. Rate is typically 0.625-0.875% higher than primary residence. Fannie Mae allows up to 10 financed properties (most lenders cap at 4). After 4 investment loans, we often switch to DSCR (Non-QM) programs for the rest.
What's the difference between conventional and conforming?
All conforming loans are conventional, but not all conventional loans are conforming. A conforming loan meets Fannie/Freddie size limits ($832,750 in 2026 for most counties). A conventional loan above the limit is called a "Jumbo" — still conventional, just non-conforming. Jumbo loans have stricter credit requirements and slightly different pricing.
Can I use gift funds for my conventional down payment?
Yes, partially. For primary residences with at least 5% down, the entire down payment can be gifted by a family member. With 3% down (Conventional 97), the entire amount can be gifted. Investment properties cannot use gift funds — you must source those yourself.
How long does a conventional loan take to close?
21-30 days for purchase loans. 21-35 days for rate-and-term refinances. 30-45 days for cash-out refinances. Conventional underwriting tends to move faster than FHA on stronger files, slower on borderline ones.
Can I refinance from FHA to conventional?
Yes — and many borrowers do, specifically to drop FHA's lifetime MIP. If you've built equity to 80% LTV and your credit is 660+, refinancing to conventional usually saves $150-$300/month. We model this regularly; ask us to run your specific scenario.
What's the maximum DTI for a conventional loan?
Officially up to 50% with compensating factors (reserves, strong credit). Most lenders cap at 45%. If you're above 45% and your credit is strong, we may have access to lenders that go higher. Below 36% is the sweet spot for best pricing.
Find Out If Conventional Is the Right Fit
Free analysis with no credit pull at the first call. We'll compare conventional, FHA, and VA side-by-side and tell you straight which loan gives you the lowest 5-year total cost. Pre-approval in 24 hours once you're ready.
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Terms & Conditions: Conventional loan rates and pricing are illustrative based on a 740 FICO, 70% loan-to-value, single-family primary residence, 30-year fixed rate. Your actual rate depends on credit profile, debt-to-income, property type, occupancy, loan amount, and current market conditions at lock time. APR includes estimated closing costs and is for comparison purposes. PMI estimates assume standard borrower-paid monthly mortgage insurance; lender-paid PMI alternatives exist. Conforming loan limits are set annually by FHFA; the 2026 baseline is $832,750 with high-cost ceiling of $1,249,125. Conventional loans above these limits are Jumbo (non-conforming). Subject to credit and program approval. OnPoint Mortgage Pro is a licensed mortgage broker; NMLS #2134550. Equal Housing Lender.