Conventional loans

What it is

A conventional loan is one that conforms to Fannie Mae or Freddie Mac guidelines and can be sold to them once it closes. That's what makes it cheap, because the lender isn't the one keeping the risk, so pricing stays competitive and the rules stay consistent from one lender to the next.

Down payment starts at 3% for qualified first-time buyers (5% otherwise), credit generally starts around 620, and the 2026 baseline conforming limit for a one-unit property is $832,750. Above that number you're into jumbo territory, which is a different set of rules entirely.

The mortgage insurance advantage

This is the part worth slowing down for, because to most borrowers it's worth more than a quarter-point of rate is.

If you put less than 20% down on a conventional loan you pay private mortgage insurance, but it comes off automatically at 78% loan-to-value based on your original amortization schedule, and you can request removal at 80%. FHA mortgage insurance generally lasts the life of the loan when you put less than 10% down, which is a very different animal.

So over a ten-year hold, that difference frequently exceeds anything you'd have saved by shopping the rate. Nobody runs that comparison for you, so I do.

When conventional isn't the answer

• Credit below about 620. FHA goes to 580 at 3.5% down, and to 500 at 10% down.
• High debt-to-income. FHA is more forgiving here.
• Self-employed with aggressive write-offs. See bank statement loans.
• You're a veteran. VA beats conventional almost every time.

Common questions

Do I need 20% down?

No. Twenty percent avoids mortgage insurance, which is a real benefit worth having, but it isn't an entry requirement, and waiting years to accumulate it while prices climb is usually the more expensive path of the two.

What credit score do I need?

Generally 620 to start, though the pricing improves meaningfully as you climb from there. The difference between a 680 and a 760 is real money every month.

Can I use a conventional loan for a rental?

Yes, at a higher down payment and a higher rate. Past a certain number of financed properties you'll want DSCR instead.