You're buying a home — or moving — and wondering if a conventional loan is the best way to finance it. With so many mortgage options out there, it can be hard to judge which loan will give you the terms you need upfront while costing the least amount of money over time.
Do you opt for an FHA loan with its lower credit score requirement, even if it means upfront and annual mortgage insurance premiums? How will the costs compare to the private mortgage insurance (PMI) on a conventional loan? And what about your credit score, income, and down payment size — how do these affect the terms on a conventional loan vs. other options?
Below, you'll find everything to know about conventional loans, including how they measure up to common alternatives like FHA loans. We’ll also run through some example PMI calculations so you get an accurate idea of what monthly payments look like with different financial profiles.
What is a conventional loan?
A conventional loan is the most common type of mortgage, accounting for about 49% of new home loan applications in February 2026.[1] The next most common loan type, the FHA loan, accounted for about 35% of applications.
But since conventional loans aren't guaranteed by the government like FHA, USDA, or VA loans, the lender takes on the default risk. That's why qualifying criteria for conventional loans are stricter than for government-backed loans.
Conventional loans can be either conforming or non-conforming:
- Conforming conventional loans: A conforming loan meets the qualifying standards set by the two government-sponsored enterprises Fannie Mae and Freddie Mac. These mortgages must also adhere to Federal Housing Finance Agency (FHFA) loan limits. For 2026, the loan limit for a single-unit property in most areas nationwide is $832,750. Higher-cost areas have a loan limit of $1,249,125. [2]
- Non-conforming conventional loans: Don't meet the standards set by Fannie Mae and Freddie Mac. For example, a jumbo loan is a type of non-conforming loan because its loan limits exceed those set by the FHFA.
Types of conventional loans
Here are the main types of conventional loans offered by lenders:
| Type of loan | Loan features |
|---|---|
| Fixed-rate loan | Mortgage rate stays the same for the entire loan term, bringing stable monthly payments; most buyers choose this option |
| Adjustable-rate loan | Mortgage rate starts off fixed for a set number of years and then adjusts for the remainder of the loan term; payments can go up or down depending on the rate market |
| Conforming loan | Loan criteria meet standards set by Fannie Mae and Freddie Mac, including those for loan size limits |
| Jumbo loan | Loan size exceeds the limit set by the FHFA; necessary if you’re buying an expensive home or live in a high-cost area |
| Portfolio loan | Loans that lenders keep on their books instead of selling off to Fannie or Freddie; less common but have more flexibility |
Conventional loans also come with varying loan term lengths — most commonly 15 or 30 years. A 15-year mortgage may offer a slightly lower interest rate, but monthly payments are higher to match the shorter timeline.
Current conventional mortgage rates
The 30-year, fixed-rate mortgage is 6.30% as of April 16, 2026, according to Freddie Mac.[3]
“Looking at mortgage rates from a five-year perspective, we hit the low 3’s during the pandemic (2020-21) then reached around 7.79% at the height of inflation in 2023,” says Mark Cohen, founder and CEO of Cohen Financial Group in Beverly Hills, CA. “Today, a well qualified borrower can expect to land in the mid 6’s, which is in the upper range of the five-year high.”
FHA loan rates are typically slightly lower than those for conventional loans, which can make them seem like the better deal. But don’t forget about insurance costs. When you factor in FHA mortgage insurance premiums, a conventional loan — even with a slightly higher rate — is often cheaper for a borrower with solid credit.
Conventional loan requirements
Part of understanding if a conventional loan is right for you involves knowing if you meet the requirements to qualify. Here are the four main criteria you should know about:
- Credit score: The minimum credit score for most conventional loans is 620, but the better your score is, the better rates and terms lenders will offer you. In late 2025, Fannie Mae and Freddie Mac removed the minimum credit score requirement from their guidelines in favor of a more comprehensive assessment of qualifying factors.[4] However, many lenders still require at least a 620.
- DTI ratio: Your debt-to-income (DTI) ratio — which compares your total monthly debt to your gross monthly income — tells lenders whether your budget can handle a mortgage. To find it, add up all your current debt plus your qualifying mortgage payment, divide it by your gross monthly income, and then multiply by 100 to convert the value to a percentage. DTI can't exceed 36% for manually underwritten loans, but with compensating factors, this maximum can slide to up to 50%.[5]
- Down payment: Through Fannie's HomeReady and Freddie's Home Possible programs, you need just 3% down, as long as your income doesn't exceed about 80% of your area's median. [6][7] Most other conventional loans require 3% down for fixed-rate mortgages and 5% down for adjustable-rate mortgages.[8] A 20% down payment lets you avoid private mortgage insurance (PMI).[9]
- Loan limits: For 2026, the FHFA set a conforming loan limit of $832,750 in most U.S. areas and up to about $1.25M in high-cost areas.[2]
“Lenders are looking for full income documentation, quality, 50% debt-to-income ratio (DTI), a minimum of a 5% down payment, and typically a credit score of 620 or more,” says Cohen.
Rebecca Richardson, loan officer at The Mortgage Mentor in Charlotte, NC, shares that one of the most common misconceptions she’s seen in her 25 years of experience is that home buyers need to put down 20% to buy a home. That’s not true; in some cases, you only need to put 3% down.
Richardson also explains that some people feel pressured to make a 20% down payment to avoid PMI. In response, she challenges people to view PMI as leverage: “With how home prices have increased and just the cost of living, it's really hard to outpace housing affordability [while] also trying to save up 20%, so the end zone keeps moving,” Richardson says. “So PMI is a way to go ahead and get into a home.”
What would my payment look like on a conventional loan?
Your monthly payment on a convention loan depends on what interest rate you get and how much you put down on a home. A higher credit score and larger down payment often get you a better rate, lowering your monthly payment.
Here are three example scenarios for borrowers buying a $400,000 home:
| Borrower A | Borrower B | Borrower C | |
|---|---|---|---|
| Credit score | 620 | 700 | 780 |
| DTI | 45% | 40% | 36% |
| Down payment | 5% | 10% | 20% |
| Base loan amount | $380,000 | $360,000 | $320,000 |
| Interest rate | 7.63% | 6.80% | 6.00% |
| Principal and interest | $2,691 | $2,347 | $1,919 |
| Monthly PMI[10] | $475 | $237 | $0 |
| Homeowners insurance | $300 | $300 | $300 |
| Property taxes | $100 | $100 | $100 |
| Total monthly payment | $3,566 | $2,984 | $2,319 |
Keep in mind that these values are illustrative only; actual figures will vary based on the lender and your personal financial profile. Use our mortgage calculator to plug in your own numbers.
Mortgage Calculator
Estimate your monthly payment for a fixed-rate conventional loan and explore the full amortization schedule.
How does PMI work on a conventional mortgage loan?
Conventional loans require PMI any time you make a down payment less than 20% of the purchase price. This insurance doesn’t protect you — it protects the lender in case you default on the loan.
PMI premiums depend on your credit score and down payment, and typically range from 0.46–1.50% of the loan balance, according to the Urban Institute.[10] With a higher credit score and down payment, you can pay less in PMI premiums per month.
For example, let’s say you put 5% down on a $350,000 property, giving you a $332,500 loan balance at a 6.5% interest rate. With a 720 credit score, you’d pay a PMI rate of 0.70% of the loan balance or roughly $194 per month in PMI premiums. If your credit score was lower — say 640 — you’d pay a 1.31% PMI rate or roughly $363 per month. These PMI premiums are added to your monthly mortgage payments.
Instead of paying these premiums each month as part of your mortgage payment, some lenders might allow you to pay your PMI dues as a lump sum payment at closing. This is known as a single-premium PMI or an up-front PMI.[9]
“It can be worth considering usually if someone is putting between 10-20 down,” says Richardson. “Depending on the other loan details, paying this as a one-time charge can be more beneficial and cost less than paying it monthly.”
Keep in mind, though, that PMI doesn’t last the entire loan term. Once you hit 78% LTV of the home’s original purchase price, PMI is automatically cancelled.[11] You can request manual PMI termination once you hit 80% LTV.
TIP: PMI can also be removed early if you reappraise your home and find that you’ve reached 20% equity. This can be especially useful to cancel PMI if home values have significantly increased in your area.
Conventional loan vs. other loan types
Conventional loans are the most common loan type borrowers get, but it’s not your only option. Other loan types include government-backed options like FHA loans, USDA loans, and VA loans.
| Loan type | Credit score minimum | Down payment minimum | Mortgage insurance | Eligibility restrictions |
|---|---|---|---|---|
| Conventional loan | 620 | 3-5% depending on program and fixed or adjustable rate | Monthly PMI premiums with less than 20% down; can be paid as single-premium PMI at closing | Anyone can apply; must meet loan size limits and generally have a DTI ratio at or below 45% |
| FHA loan[12][13] | 580 with 3.5% down, 500 with 10% down | 3.5% | Upfront MIP of 1.75% plus monthly MIP payments (either for life of loan or first 11 years, depending on down payment size) | Anyone can apply; must generally have a DTI ratio at or below 43% (sometimes up to 50% with compensating factors) |
| USDA loan[14][15] | 640 | 0% | No insurance, but 1% upfront guarantee fee and .35% annual fee | Must be purchasing an eligible rural property and meet household income limits |
| VA loan[16] | No minimum requirement, but lenders set their own minimums | 0% | No insurance | Must be an active-duty servicemember, veteran, or surviving spouse |
Keep in mind that only conventional loans can be used for investment properties or second homes — government-backed loans cannot.
FHA loans
An attractive feature of FHA loans is that they have less strict credit score requirements than conventional loans. With the minimum 3.5% down payment requirement, you only need a 580. If you put down 10%, the credit score minimum drops to 500.
FHA loans come with their own insurance, called a mortgage insurance premium (MIP). Unlike conventional PMI — a single premium paid monthly — FHA MIP has two parts: an upfront fee of 1.75% of the loan amount paid at closing, and an annual fee that's paid monthly and ranges from 0.15–0.75%, depending on loan size and LTV ratio.
Here's a key difference: conventional loans let you cancel PMI at 20% equity, but FHA loans require MIP for the life of the loan — unless you put at least 10% down, in which case you pay MIP for 11 years.[13]
UPFRONT MIP EXAMPLE: $325,000 loan x 1.75% = $5,688 upfront MIP added to loan balance
You'll generally need a DTI ratio at or below 43% to qualify for an FHA loan, though lenders may extend that to 50% with other compensating factors.
READ MORE: Conventional loan vs. FHA loan
USDA loans
USDA loans can be difficult to get because they have narrow eligibility criteria. But if you purchase an eligible rural property and do not exceed the household income limits — 115% of the area median household income — they can be a good choice, especially if you’re struggling to save for a down payment. With a USDA loan, you don’t need to put any money down.
You’ll need to have a solid credit score, though. USDA loans require a minimum 640 credit score, slightly higher than the floor for conventional loans. You'll also pay a 1% guarantee fee to offset the costs of the government backing, plus a 0.35% annual fee — both of which can be rolled into the loan.
VA loans
Similar to USDA loans, VA loans don’t require any down payment. They also don’t come with any mortgage insurance requirements and tend to have lower rates than conventional loans, making them a more affordable option. However, you must pay a one-time funding fee, which is a small percentage of the loan total. And while the VA does not set a credit score minimum, lenders do.
VA loans are an exclusive product — only active-duty servicemembers, veterans, and surviving spouses are eligible. You must apply for and receive a document called a Certificate of Eligibility to prove that you qualify for a VA loan. But if you qualify, a VA loan is one of the best loan products to help finance a home purchase.
Is a conventional loan right for you?
Advantages of a conventional loan
A conventional loan is a popular loan for a reason. Here are some key benefits of this loan type:
- Cancellable PMI: Unlike FHA MIP, which usually lasts for the life of the loan, PMI is cancellable once you’ve hit 20% equity.
- No upfront PMI premium: Compared to an FHA loan, you can save some money upfront with a conventional loan thanks to the lack of an upfront mortgage insurance premium.
- Competitive rates: Borrowers with excellent credit scores often get the lowest rates with conventional loans — which means lower monthly payments and less interest overall.
- Property type flexibility: You can use a conventional loan to purchase not just a primary residence but also a second home or investment property. FHA, VA, and USDA loans can only fund purchases for primary residences.
- Seller appeal: Sometimes, conventional loan offers are more appealing to sellers because they don’t require FHA property appraisals. These appraisals come with strict property condition requirements that homes must meet for the buyer’s FHA loan funding to go through.[17]
Disadvantages of a conventional loan
Conventional loans aren’t without their drawbacks. Consider these disadvantages as you assess your loan options:
- Stricter credit requirements: The 620 credit score minimum for a conventional loan is higher than the minimum for FHA loans. But the higher your credit score, the better rate a lender might offer you. The best conventional loan rates typically go to borrowers with a credit score of 760 or above.[18]
- PMI required below 20% down: Scraping together a 20% down payment is no small feat. First-time buyers made a median down payment of just 10% in 2025, according to the National Association of Realtors,which means most end up paying PMI.[19]
- Long waiting periods after financial hardship: You must wait 2–4 years to apply for a conventional loan after bankruptcy and 3–7 years after foreclosure — longer than FHA's two-year wait after bankruptcy and three-year wait after foreclosure. [13]
If you've saved at least 5% for a down payment, have a credit score above 680, and a manageable DTI ratio, a conventional loan is likely your best path. Borrowers who don’t fit that profile might want to explore an FHA loan.
How to get a conventional loan
Getting a conventional loan involves more than choosing a lender and following their application process. A bit of prep work upfront can help you land the best offer. Follow these steps:
- Talk to a lender early on: Making any meaningful changes to your credit score or DTI ratio takes time — from several months to a year.[20] Before you start house hunting, meet with a loan officer to review your financial profile and flag areas to improve.
- Get pre-approved, not just pre-qualified: When you’re ready to shop, apply for pre-approval. This process involves a loan officer verifying your income and checking your credit score, so it carries more weight with sellers when you submit an offer. Prequalification skips the hard credit check and income verification, and just gives you a rough idea of what you could qualify for. Multiple credit inquiries within a 45-day window count as one, so don't be afraid to get more than one preapproval in that period.
- Shop more than one lender: Don’t just pick the first lender you speak to. Ideally, you should compare offers from at least 2–3 lenders. Cohen notes that rates really only vary by about an eighth of a point by lender, so service is often what matters more. “Focus should be on service and how they [lenders] execute loans,” says Cohen. “A great rate means nothing if the lender can’t close the deal.”
- Ask for a Loan Estimate in writing: Verbal quotes are hard to compare, even between loan options from the same lender. Request written Loan Estimates so you can line up interest rates, APRs, terms, and fees side by side.
Talk to a loan officer to see if a conventional is right for you
Whether you’re thinking of applying for a mortgage today or in a few months, connecting with a loan officer now can help. An experienced loan officer can look at your current financial profile and advise you on your mortgage options.
At Best Interest Financial, we provide personalized, white-glove service that big-box and automated lenders can’t. With over 80 years of combined experience and billions in closed loans, our loan officers have the expertise to help identify creative financing possibilities that others miss.
No matter what your timeline is, we can help you develop a strategy to reach your goals and get you on the path to home ownership. Get a free, 60-second quote from Best Interest today to learn more.
FAQ
You don’t need to put 20% down to get a conventional loan. You only need to make a 20% down payment if you want to eliminate PMI completely. The minimum down payment requirement is 3-5%, but the right amount for you depends on how much you have saved and how quickly you want to purchase a home.
Which loan is better depends on your credit score, down payment size, and how long you plan to own the home. If your credit needs work but your score is above 500, an FHA loan might be the path. If your credit score is over 700 and you can put at least 5% down, a conventional loan can be the better deal. To be sure, run the numbers by comparing a Loan Estimate for both.
Sometimes — but once you factor in the 1.75% upfront mortgage insurance premium and monthly MIPs that come with an FHA loan, a conventional loan is often cheaper overall, especially for home buyers with strong credit scores.