Conventional Loan Requirements, Rates and Down Payments

A conventional loan is a mortgage that is funded by private lenders like banks, credit unions and mortgage companies. These loans aren’t governed by a governmental agency. Fannie Mae and Freddie Mac set the standards for conventional loans.

Whether you’re buying your first home or looking to refinance, this guide covers everything you need to know about conventional loans, from the minimum down payment to the pros and cons you’ll encounter.

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Key Takeaways

• A conventional loan is a mortgage backed by private lenders, not the government. Fannie Mae and Freddie Mac set the standards for credit, income and property requirements.

• You'll generally need a 620 credit score and at least 3% down. Scores of 700 or higher unlock better mortgage rates, and 20% down lets you skip private mortgage insurance (PMI).

• The 2026 conforming loan limit is $832,750 in most areas. Loans above that are jumbo, nonconforming and come with stricter requirements.

• Conventional loans work for primary homes, second homes and investment properties. That flexibility, plus higher limits, sets them apart from many government-backed options.

Summary generated by AI, verified by MoneyLion editors

What Is a Conventional Loan?

A conventional loan is a mortgage that’s not insured or guaranteed by any government agency like the Federal Housing Administration (FHA), Veterans Affairs (VA) or United States Department of Agriculture (USDA).

• A conventional loan is backed by private lenders like banks, credit unions and mortgage companies.

• The standards for these loans are governed by Fannie Mae and Freddie Mac.

• You’ll be evaluated for the loan on the following factors: credit score, debt-to-income (DTI) ratio, loan limits and property requirements.

• You'll need a good credit score of at least 620. Better rates are reserved for those who have scores over 700.

• These loans can be used for primary residences, second homes and investment properties.

• You need at least 3% for a down payment if you qualify.

• If you have a down payment that is less than 20%, you'll need PMI.

How Does a Conventional Loan Work?

A conventional mortgage loan is categorized into these two broad types:

• Conforming loans: These meet the guidelines set by Fannie Mae and Freddie Mac, including loan limits, credit requirements and property standards. For 2026, the maximum conventional loan amount for conforming loans is $832,750 in most areas, with higher limits in certain regions with a greater cost of living.

• Nonconforming loans: These don’t meet Fannie Mae and Freddie Mac guidelines. Examples include jumbo loans, which exceed the conforming loan limit, and subprime loans for borrowers with less-than-ideal credit.

Conventional Loan vs. Government-Backed Loans

When comparing conventional loans to government-backed options like FHA loans, there are some clear differences:

Types of Conventional Loans

Conforming and nonconforming loans are just the beginning. Here are some of the most common types of conventional loans and when they may make sense.

Pros and Cons of a Conventional Loan

Like any financial decision, choosing a conventional mortgage comes with its advantages and drawbacks — it’s not a one-size-fits-all situation. These loans are favored for their flexibility and competitive terms, but they also require stronger financial credentials to qualify.

How To Qualify for a Conventional Loan

Lenders evaluate several parts of your financial profile before approving a conventional mortgage. These are the most important qualification requirements.

• Credit score: Meeting conventional loan credit requirements often means having a minimum credit score of 620, but borrowers with scores of 700 or higher can enjoy better interest rates and terms.

• Down payment: The conventional loan down payment starts at 3% for first-time buyers, but putting down 20% eliminates having to get PMI.

• DTI ratio: Most lenders require a DTI ratio of 43% or less to qualify.

• Employment history: Lenders want a steady job history, typically two years or more.

• Income verification: Proof of stable income through pay stubs, tax returns and bank statements is essential.

How To Apply for a Conventional Loan

Use the checklist below to prepare for the conventional mortgage application process.

1. Check your credit score: Ideally you want a credit score of 620. The higher the score, the more likely you are to receive a good interest rate.

2. Calculate your DTI ratio: You can get your ratio by adding all monthly debt payments and dividing by your gross monthly income. Lenders like to see a DTI ratio of 43% or less.

3. Save for a down payment: If you want to avoid PMI payments, your down payment should be 20%.

4. Gather all your documentation: You will need two years of tax returns and W-2s, recent pay stubs, bank statements and proof of other income sources.

5. Try to get preapproved: Shop around to get a preapproved letter to see what is a realistic price range for you.

6. Choose your loan type: Choose between a 15- or 30-year loan and fixed or ARM.

7. Submit your application: You can submit an application online or in person.

8. Close on the loan: Review rates, terms and loan details to make sure it aligns with what you applied for.

How To Get the Best Conventional Loan Rate

Shopping around is only part of the process. These steps can help you secure the best conventional mortgage rate available to you.

• Raise your credit score: The higher your credit score, the more likely you’ll get a favorable interest rate.

• Target a 20% down payment: If you have at least a 20% down payment, you won’t need to pay PMI.

• Pay down existing debt: You want to lower your DTI ratio. By paying down credit card debt and other debt, you’ll be able to put yourself in the position to get a better rate.

• Shop around: Compare at least three to five lenders to get an idea of your rate.

• Lock your rate: When you find the right rate, be sure you act within 30 to 60 days.

Minimum vs. Ideal Credit Scores

Meeting the minimum credit score requirement can help you qualify, but a higher score may help you secure a lower interest rate and better loan terms.

• Minimum score: Most lenders require a score of 620.

• Ideal credit score: Having a credit score of 740 will get you a better rate.

Is a Conventional Loan Right for You?

• Your credit score is above 620.

• You can put down a 20% payment to avoid PMI.

• You want to finance a primary home, second home or investment property.

• You have steady income and can manage monthly payments.

• You’re going to stay in the home long enough to take advantage of the terms.

Conventional Mortgage FAQs

What credit score do you need to get a conventional loan?

You need at least a credit score of 620 to qualify for a conventional loan. You’ll get a better rate with a credit score of about 740.

How much do you have to put down on a conventional loan?

At least 3% is required as a down payment. If you put down 20% or more, you’ll not be required to add PMI.

What's the difference between a conventional loan and an FHA loan?

Conventional loans require 620 or more, offer flexible rates and terms for primary homes, second homes and investment property. FHA loans require a 580 with a 3.5% down but require mortgage insurance premiums over the life of the loan.

Can you get a conventional loan with a high DTI ratio?

Most lenders will approve conventional loans with a DTI ratio around 43%.

When can you stop paying PMI on a conventional loan?

Once the loan reaches 80% of the home’s value, borrowers can request cancellation.

Can first-time homebuyers use a conventional loan?

First-time homebuyers who meet income requirements can use a conventional loan.

Key Terms

• Conventional loan: A mortgage funded by private lenders and not insured by a government agency, following standards set by Fannie Mae and Freddie Mac.

• Conforming loan: A conventional loan that meets Fannie Mae and Freddie Mac guidelines, including the annual conforming loan limit.

• Jumbo loan: A nonconforming loan that exceeds the conforming limit and typically carries stricter credit, income and reserve requirements.

• PMI: Insurance a conventional borrower pays when the down payment is under 20%, cancellable at 80% loan-to-value and automatically ended at 78%.

• DTI ratio: Your total monthly debt payments divided by gross monthly income. Most conventional lenders look for a ratio of 43% or less.

• ARM: A loan with a fixed introductory rate that later adjusts periodically based on market conditions.

• Conforming loan limit: The maximum loan amount Fannie Mae and Freddie Mac will buy, set annually by the FHFA — $832,750 for one-unit properties in most areas in 2026.

Summary generated by AI, verified by MoneyLion editors

Sources

• FHA.com. "Credit Requirements for FHA Loans."

• New American Funding. "Conventional Loan Down Payment Requirements."

• FHA.com. "FHA Down Payments for Homebuyers."

• U.S. Federal Housing. 2025. "FHFA Announces Conforming Loan Limit Values for 2026."

• Fannie Mae. "Loan Limits."

Information is accurate as of July 16, 2026.

Stephen Milioti contributed to the reporting for this article.