Everything about conventional mortgages: credit requirements, down payments, conforming loan limits, PMI, and how to qualify with the best possible rate.
Conventional Loan — Quick Facts 2024
620
3%
50%
$766,550
Cancelable at 80% LTV
Private (Fannie/Freddie)
What Is a Conventional Loan?
A conventional loan is any mortgage not backed or insured by the federal government. Unlike FHA, VA, and USDA loans, conventional mortgages are made by private lenders and purchased by Fannie Mae and Freddie Mac on the secondary market. These government-sponsored enterprises (GSEs) set the guidelines that determine what qualifies as a "conforming" conventional loan.
Conventional loans are the most common mortgage type in the United States, accounting for roughly 70% of all home purchase loans. They offer more flexibility than government-backed programs — you can use them for primary residences, second homes, and investment properties — but they typically require better credit and larger down payments.
Conventional Loan Requirements
Credit Score
Most conventional lenders require a minimum credit score of 620. However, to access the best rates and avoid additional pricing adjustments (called Loan-Level Price Adjustments or LLPAs), you'll want a score of 740 or higher. The difference between a 620 and 760 credit score can translate to 0.5–1.5% higher interest rate, costing tens of thousands over the loan life.
Down Payment Options
3% down — Available through Fannie Mae HomeReady and Freddie Mac Home Possible programs for first-time or low-to-moderate income buyers
5% down — Standard minimum for repeat buyers on primary residences
10–15% down — Reduces PMI cost significantly
20% down — Eliminates PMI entirely; typically earns the best rates
25–30% down — Required for investment properties and second homes
Debt-to-Income Ratio
Fannie Mae and Freddie Mac allow back-end DTI ratios up to 45–50% with automated underwriting approval. Manual underwriting caps are typically lower. With compensating factors like substantial reserves or a very high credit score, some lenders will approve DTIs up to 50%.
Private Mortgage Insurance (PMI)
PMI is required when your down payment is less than 20%. Unlike FHA mortgage insurance, conventional PMI automatically cancels when your loan balance reaches 80% of the original purchase price — or you can request cancellation at 80% LTV. This is a major advantage over FHA loans that require lifetime MIP in most cases.
Typical PMI costs: 0.5–1.5% of the loan amount annually. On a $300,000 loan, that's $125–$375/month. The exact rate depends on your credit score, LTV ratio, and loan term.
Conforming Loan Limits 2024
Conforming loans must stay within limits set by the Federal Housing Finance Agency (FHFA). For 2024:
Property Type
Most U.S. Counties
High-Cost Areas
1 Unit (Single-Family)
$766,550
Up to $1,149,825
2 Unit (Duplex)
$981,500
Up to $1,472,250
3 Unit
$1,186,350
Up to $1,779,525
4 Unit
$1,474,400
Up to $2,211,600
Loans above these limits are called jumbo loans and have different requirements. High-cost counties (many California, New York, and Colorado markets) have higher limits — check the FHFA's website for specific county limits.
Conventional Loan Pros and Cons
Advantages
PMI cancels at 80% LTV — not lifetime like FHA MIP
No upfront mortgage insurance premium
Available for second homes and investment properties
Higher loan limits than FHA in most areas
More flexible property requirements
Multiple down payment options (3%–20%+)
Best rates for borrowers with 740+ credit
Broader condo eligibility vs FHA-approved-only
Disadvantages
Higher minimum credit score than FHA (620 vs 580)
Loan-Level Price Adjustments increase cost for lower scores
Stricter DTI requirements than FHA
Gift funds restricted for some programs
Higher barriers for buyers recovering from credit issues
PMI not avoidable without 20% down (though 2nd lien options exist)
Conventional Loan Types
Fixed-Rate Conventional
The most popular option — your interest rate and payment never change. Available in 10, 15, 20, and 30-year terms. The 30-year fixed is the most common, offering the lowest monthly payment among fixed options.
Adjustable-Rate Conventional (ARM)
ARMs offer a fixed rate for an initial period (5, 7, or 10 years), then adjust annually based on a market index. ARMs typically start 0.5–1% lower than 30-year fixed rates. They make most sense when you plan to sell or refinance before the adjustment period begins.
HomeReady and Home Possible
Fannie Mae's HomeReady and Freddie Mac's Home Possible programs allow 3% down for qualifying buyers. Income limits apply (typically 80% of area median income). These programs offer reduced PMI rates compared to standard conventional loans at the same LTV, making them more affordable than the numbers suggest.
How to Get the Best Conventional Rate
Maximize your credit score — Every 20-point tier from 620 to 760+ materially changes your rate and PMI cost
Put at least 20% down if you can eliminate PMI entirely
Lower your DTI by paying off installment debt before applying
Get quotes from 3–5 lenders — Conventional rates vary more across lenders than government loan rates
Consider paying points if you plan to keep the loan long-term
Lock early when rates are favorable — rate volatility is real
Frequently Asked Questions
Most lenders require a minimum 620 credit score for conventional loans. However, your rate improves significantly with higher scores. Borrowers with 740+ credit typically receive the best available rates. Scores between 620–679 may face Loan-Level Price Adjustments that effectively raise the cost of the loan beyond just the interest rate.
The minimum down payment for a conventional loan is 3% through Fannie Mae HomeReady or Freddie Mac Home Possible programs for qualifying buyers. Most conventional loans for repeat buyers require 5% down. You'll need 10–25% for second homes, and 15–30% for investment properties.
You can request PMI cancellation when your loan balance reaches 80% of the original purchase price, and your lender must automatically cancel it at 78% of the original value. If home values have risen substantially, you may be able to get a new appraisal to demonstrate 80% LTV based on current value, which can allow early PMI removal.
It depends on your credit score and down payment. If you have 680+ credit and can put 5%+ down, conventional is usually better long-term because PMI can be canceled. If your credit is 580–679 or you have limited funds, FHA may offer more accessible qualification standards. Run the numbers for your specific situation — the monthly payment difference often matters more than which loan type sounds better on paper.
Disclaimer: Smart Mortgage Guide provides educational content only. We are not a licensed mortgage lender, broker, or financial advisor. Rates, limits, and program details are subject to change. Always consult with a licensed mortgage professional before making financial decisions.