A conventional loan is a mortgage that is not backed by a federal housing program. Conventional mortgages can be used for primary residences and, depending on the loan, second homes or investment properties.
Some conventional loans conform to Fannie Mae or Freddie Mac requirements. Others are nonconforming and follow different investor or lender standards. Your down payment, credit profile, debt-to-income ratio, property type and loan amount all affect which options may be available.
Conventional Loan Basics
| Feature |
What To Know |
| Government backing |
Conventional loans are not insured or guaranteed by FHA, VA or USDA. |
| Conforming loans |
Meet applicable Fannie Mae or Freddie Mac requirements, including FHFA loan limits. |
| 2026 baseline conforming limit |
$832,750 for a one-unit property in most of the United States. |
| Down payment |
Some eligible one-unit primary-residence purchase loans allow as little as 3% down. |
| Mortgage insurance |
Private mortgage insurance may be required on conventional first mortgages above 80% loan-to-value, depending on the loan structure. |
| Property use |
Depending on program rules, conventional loans may finance a primary residence, second home or investment property. |
How Conventional Loans Work
A conventional mortgage is made without federal mortgage insurance or a federal loan guaranty. Banks, credit unions, mortgage companies and other lenders can originate conventional mortgages.
Many conventional loans are underwritten so they can be sold to Fannie Mae or Freddie Mac. Those mortgages are called conforming loans. A mortgage can also be conventional without being conforming, such as a jumbo loan or another loan that does not meet agency requirements.
Conventional underwriting evaluates factors such as income, assets, credit history, existing debts, loan-to-value ratio and the property being financed. Documentation and eligibility rules vary by loan program and underwriting method. Both W-2 earners and self-employed borrowers can qualify when their income is documented under the applicable rules.
Conforming vs. Nonconforming Conventional Loans
Conventional loans can be conforming or nonconforming.
Conforming Conventional Loans
Conforming loans meet the eligibility and loan-limit requirements for purchase by Fannie Mae or Freddie Mac. The Federal Housing Finance Agency sets conforming loan limits each year.
For 2026, the FHFA limit for a one-unit property is $832,750 in most of the United States. The general one-unit ceiling in designated high-cost areas is $1,249,125. Special statutory limits apply in Alaska, Hawaii, Guam and the U.S. Virgin Islands.
Nonconforming Conventional Loans
Nonconforming conventional loans do not meet one or more Fannie Mae or Freddie Mac requirements. A jumbo mortgage is a common example because its balance exceeds the applicable conforming loan limit.
Nonconforming does not describe one set of underwriting rules. Credit, reserves, down payment, documentation and pricing vary by lender, investor and product, so a jumbo or other nonconforming loan should be evaluated under its specific guidelines.
| Feature |
Conforming Conventional |
Nonconforming Conventional |
| Federal backing |
None |
None |
| Fannie Mae or Freddie Mac eligibility |
Designed to meet applicable agency requirements. |
Does not meet one or more applicable agency requirements. |
| Loan amount |
Must remain within the applicable conforming loan limit. |
May exceed conforming limits or fall outside agency rules for another reason. |
| Underwriting |
Follows applicable Fannie Mae or Freddie Mac standards plus lender requirements. |
Varies by lender, investor and product. |
Types of Conventional Loans
Fixed-Rate Mortgages
A fixed-rate mortgage keeps the same interest rate for the full loan term. Common terms include 15 and 30 years, although other terms are available. The scheduled principal-and-interest payment remains stable, while taxes, homeowners insurance and other housing costs can change.
Adjustable-Rate Mortgages
An adjustable-rate mortgage generally has an initial fixed-rate period followed by adjustments based on the loan's index, margin and rate caps. The exact adjustment schedule depends on the mortgage.
Jumbo Loans
Jumbo loans are conventional mortgages with balances above the applicable FHFA conforming loan limit. Their requirements are set by the lender or investor rather than Fannie Mae or Freddie Mac.
Low-Down-Payment Conventional Loans
Some conforming conventional programs allow up to 97% loan-to-value for eligible one-unit primary-residence purchases, which can mean a 3% down payment. Eligibility restrictions apply, and higher down payments are required for many other transactions and property types. Fannie Mae's purchase rules describe the requirements for transactions above 95% LTV.
Conventional Loan Credit Score, DTI and Down Payment Requirements
There is no single credit score, DTI ratio or down payment requirement that applies to every conventional mortgage. Requirements vary by agency, underwriting method, occupancy, property type and lender.
Credit Score
The common statement that every conforming conventional loan requires a 620 credit score is no longer accurate. Under current Fannie Mae rules, manually underwritten fixed-rate loans generally require a minimum 620 credit score and manually underwritten ARMs generally require 640. Desktop Underwriter, or DU, casefiles do not have a minimum credit score requirement, although credit scores are still generally obtained and considered within the overall risk assessment.
Freddie Mac's Loan Product Advisor also evaluates credit as part of an automated risk assessment. Lenders can apply additional requirements beyond Fannie Mae or Freddie Mac minimums.
Debt-to-Income Ratio
Your debt-to-income ratio, or DTI, compares qualifying monthly debt obligations with qualifying monthly income. It is one part of conventional underwriting rather than a universal pass-or-fail number.
For example, Fannie Mae's DTI rules generally cap manually underwritten loans at 36%, with up to 45% permitted when additional eligibility requirements are met. DU casefiles can allow up to 50%. Freddie Mac automated underwriting determines the acceptable DTI through Loan Product Advisor for many loans.
Down Payment
Some conventional purchase loans permit a down payment as low as 3% for eligible borrowers. The minimum can be higher depending on factors such as occupancy, number of units, loan type and program. A 5% down payment is not a universal conventional minimum.
Private Mortgage Insurance
Private mortgage insurance, or PMI, may be required when a conventional first mortgage has a loan-to-value ratio above 80%. Fannie Mae, for example, generally requires primary mortgage insurance on conventional first mortgages above 80% LTV unless another permitted form of credit enhancement applies.
For many covered borrower-paid PMI loans on a principal residence, you can request PMI cancellation when the balance reaches or is scheduled to reach 80% of the home's original value if you meet the applicable conditions. Automatic termination generally occurs when the scheduled balance reaches 78% and the loan is current. The CFPB explains the federal cancellation and termination rules.
What Documents Do You Need for a Conventional Loan?
Documentation depends on how you earn income, the assets used to close and the underwriting method. A lender may request documents such as:
- Pay stubs or other evidence of current employment income.
- W-2 forms when needed to document employment income.
- Tax returns when required for the type of income being used, including many self-employment situations.
- Bank, retirement or investment account statements when assets must be verified.
- Information about debts and other financial obligations.
- Identification and property-related documents.
Not every borrower provides the same documents. Automated verification can also change what a lender needs to collect.
Conventional Loans vs. Government-Backed Loans
The main distinction is federal backing. Conventional mortgages are not insured or guaranteed by a federal housing agency. FHA loans are insured by the Federal Housing Administration, VA loans are guaranteed in part by the Department of Veterans Affairs and USDA guaranteed loans receive a federal guaranty through USDA Rural Development.
| Feature |
Conventional |
Government-Backed Examples |
| Federal insurance or guaranty |
No |
FHA, VA and USDA programs provide federal insurance or guaranty. |
| Low-down-payment options |
Some eligible conventional loans allow 3% down. |
FHA can allow 3.5% down for eligible borrowers. VA and USDA programs can permit no down payment when program requirements are met. |
| Mortgage insurance or program fees |
PMI may apply above 80% LTV. |
FHA uses MIP. VA can charge a funding fee. USDA guaranteed loans use upfront and annual guarantee fees. |
| Occupancy |
Depending on the loan, may finance primary residences, second homes or investment properties. |
Purchase programs generally focus on eligible primary residences and have program-specific occupancy rules. |
Borrowers comparing programs should review the actual qualification standards and total loan costs rather than assume one category is always easier to qualify for. A direct FHA vs. conventional comparison can be useful when both options are available.
Pros and Cons of Conventional Loans
Potential Benefits
- Some eligible borrowers can make a down payment as low as 3%.
- Depending on the program, conventional financing can be used for primary residences, second homes and investment properties.
- Fixed-rate and adjustable-rate options are available.
- Covered borrower-paid PMI can be canceled or terminated when federal requirements are met.
- Conforming and nonconforming products provide options across a wide range of loan amounts and borrower profiles.
Potential Trade-Offs
- Credit profile, LTV and other risk factors can affect pricing and eligibility.
- PMI may add to the monthly cost when applicable.
- Second-home and investment-property transactions generally face different eligibility, reserve and LTV requirements than primary residences.
- Most conventional mortgages include due-on-sale provisions, so a buyer generally cannot simply take over the existing mortgage in a standard sale.
- Nonconforming loans can have materially different requirements from one lender or investor to another.
The Bottom Line
A conventional loan is a mortgage that is not insured or guaranteed by a federal housing program. Some conventional loans conform to Fannie Mae or Freddie Mac requirements, while others are nonconforming.
Conventional financing can offer low-down-payment options and broad property-use flexibility, but there is no single credit score, DTI ratio or down payment rule for every conventional mortgage. Compare the specific loan's underwriting requirements, interest rate, mortgage insurance, fees and total cost.
Frequently Asked Questions
What Is a Conventional Loan?
A conventional loan is a mortgage that is not insured or guaranteed by a federal housing program such as FHA, VA or USDA.
What Is the 2026 Conventional Loan Limit?
For conforming loans, the 2026 baseline limit for a one-unit property is $832,750 in most of the United States. The general high-cost ceiling is $1,249,125, with special statutory limits in Alaska, Hawaii, Guam and the U.S. Virgin Islands.
What Credit Score Do You Need for a Conventional Loan?
There is no universal minimum for every conventional loan. Fannie Mae manually underwritten fixed-rate loans generally require at least 620 and manually underwritten ARMs generally require 640, while DU casefiles do not have a minimum credit score requirement. Lenders may apply additional standards.
How Much Do You Need for a Down Payment on a Conventional Loan?
Some eligible conventional purchase loans allow as little as 3% down. The minimum depends on the program, occupancy, property type and other transaction details.
Do Conventional Loans Require PMI?
Not all conventional loans require PMI. It may be required when a conventional first mortgage has an LTV above 80%, depending on the loan structure and investor requirements.
When Can Conventional PMI Be Removed?
For many covered borrower-paid PMI loans on a principal residence, you can request cancellation at 80% of original value if you meet the required conditions. Automatic termination generally occurs at 78% of original value when the loan is current.
Can You Use a Conventional Loan for a Second Home or Investment Property?
Yes. Conventional financing can be available for second homes and investment properties, but the eligibility, down payment, reserve and LTV requirements differ from primary-residence loans.
Are Conventional Loans Assumable?
Most conventional mortgages are not assumable in a standard home sale because their loan documents include due-on-sale or due-on-transfer provisions. Limited exceptions can apply.
Is a Conventional Loan Good for a First-Time Homebuyer?
It can be. Some conventional programs allow eligible first-time buyers to finance up to 97% of a one-unit primary residence, although qualification and program requirements still apply.
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