A conventional loan is a mortgage issued by a private lender — a bank, credit union, or mortgage company — without any federal insurance or guarantee behind it. For 2026, you can borrow up to $832,750 on a single-family home in most of the country, with higher ceilings in expensive markets. Because the lender carries the default risk directly, qualifying standards are tighter than government-backed programs, but borrowers who meet them often pay less over the life of the loan and can finance a wider range of property types.
What Makes a Loan Conventional
“Conventional” simply means the loan sits outside any federal program. FHA loans are insured by the Federal Housing Administration, VA loans carry a Department of Veterans Affairs guarantee, and USDA loans are backed by the U.S. Department of Agriculture. A conventional loan has none of that backing, so the lender looks harder at your finances before approving you.1Consumer Financial Protection Bureau. Understand the Different Kinds of Loans Available
Two government-sponsored enterprises, Fannie Mae and Freddie Mac, keep the market liquid. They don’t lend to you directly. They buy qualifying mortgages from lenders, bundle them into securities, and sell those to investors. That cycle gives the originating bank fresh cash to make the next loan, which is why conventional mortgages are widely available across the country.2FHFA. About Fannie Mae and Freddie Mac The guidelines Fannie and Freddie publish for the loans they’ll buy end up shaping almost every conventional loan a lender writes.
What You Can Buy With One
Conventional financing covers a broader range of properties than most government programs. You can use it for a single-family house, a townhome, a condo, a co-op, or a property with up to four units, as long as the property meets Fannie Mae or Freddie Mac standards. Condos need to sit in a “warrantable” project, meaning the homeowners association meets certain financial-health and ownership-concentration tests. Properties in condo-hotel projects are not eligible.3Fannie Mae. General Property Eligibility
How Much You Can Borrow in 2026
Every year the Federal Housing Finance Agency sets the maximum loan size Fannie Mae and Freddie Mac will purchase. A loan at or below that figure is called a “conforming” loan. For 2026, the baseline conforming limit for a single-unit property is $832,750 in most of the country, an increase of $26,250 over 2025.4FHFA. FHFA Announces Conforming Loan Limit Values for 2026
In areas where median home values run well above the national average, the ceiling is higher. For 2026 the high-cost single-unit limit is $1,249,125, which is 150 percent of the baseline. Alaska, Hawaii, Guam, and the U.S. Virgin Islands get a statutory ceiling of $1,873,675.4FHFA. FHFA Announces Conforming Loan Limit Values for 2026
Multi-unit properties get their own ceilings. The 2026 baseline limits in most areas are:
- Two units: $1,066,250
- Three units: $1,288,800
- Four units: $1,601,750
High-cost areas push those figures to $1,599,375, $1,933,200, and $2,402,625.5Freddie Mac Single-Family. 2026 Loan Limits Increase by 3.26%
Any mortgage above the conforming limit for your area becomes a jumbo loan. Fannie Mae and Freddie Mac won’t buy it, so the lender either keeps it on its books or sells it to private investors. That added risk translates into tougher standards: jumbo borrowers generally need a credit score of at least 700, cash reserves of up to 12 months of mortgage payments, and a lower debt-to-income ratio than conforming borrowers.
Who Qualifies
Credit Score
In late 2025, Fannie Mae eliminated its blanket minimum credit score requirement for loans processed through its Desktop Underwriter automated system. Rather than enforcing a hard 620-point floor, DU now evaluates the borrower’s overall risk profile to determine eligibility.6Fannie Mae. Selling Guide Announcement SEL-2025-09 In practice, most individual lenders still set their own minimums, and 620 remains a common cutoff because lenders layer their own risk requirements on top of Fannie’s guidelines. A higher score still earns a lower interest rate, which compounds into real savings over 30 years.
Debt-to-Income Ratio
Your debt-to-income ratio compares your total monthly debt payments, including the projected mortgage, property taxes, insurance, and any car loans, student loans, or credit card minimums, against your gross monthly income. For loans run through Fannie Mae’s automated underwriting, the maximum allowable DTI is 50%. Manually underwritten loans cap at 36%, though that ceiling can stretch to 45% if you have strong credit and sufficient cash reserves.7Fannie Mae. Debt-to-Income Ratios
Down Payment
You don’t need 20% down for a conventional loan. That’s a persistent myth. Several programs accept far less:
- Fannie Mae HomeReady allows 3% down with no minimum personal contribution. It’s open to first-time and repeat buyers, though income must be at or below the area median. Gifts, grants, and secondary financing can cover the entire down payment.8Fannie Mae. HomeReady Mortgage
- Fannie Mae’s standard 97% LTV option also allows 3% down with no income limit, but at least one borrower must be a first-time buyer, meaning you haven’t owned a home in the past three years.9Fannie Mae. FAQs 97% LTV Options
- Outside those programs, 5% down is the typical minimum.
Putting 20% or more down carries a concrete benefit: you skip private mortgage insurance entirely, which can take hundreds of dollars off your monthly payment.10Fannie Mae. What to Know About Private Mortgage Insurance
Cash Reserves
Reserves are liquid assets you still hold after closing, measured in months of mortgage payments. Fannie Mae’s minimums depend on the property and transaction type. A standard one-unit primary residence purchase requires no reserves. A second home requires two months. Investment properties and two-to-four-unit primary residences require six months. Six months of reserves are also required if your DTI exceeds 45% on a cash-out refinance.11Fannie Mae. Minimum Reserve Requirements
Private Mortgage Insurance and How to Shed It
When your down payment is less than 20%, the lender requires private mortgage insurance to protect itself if you default. PMI typically runs between 0.30% and 1.15% of the loan balance per year, divided into monthly payments added to your mortgage bill. On a $400,000 loan, that works out to roughly $100 to $383 per month. Your actual rate depends heavily on your credit score and down payment: a borrower with a 760 score and 15% down pays far less than someone with a 660 score and 5% down.
Federal law gives you two paths to cancel PMI on a conventional loan. You can request cancellation once your loan balance drops to 80% of the home’s original value, provided your payment history is current and the property hasn’t lost value. The lender may require an appraisal to confirm.12Office of the Law Revision Counsel. 12 U.S.C. Chapter 49 – Homeowners Protection If you never make that request, the lender must automatically terminate PMI when your scheduled loan balance reaches 78% of the original value, regardless of your actual balance at that point. Automatic termination happens on its own as long as you’re current on payments.13Office of the Law Revision Counsel. 12 U.S.C. 4902 – Termination of Private Mortgage Insurance
The gap between 80% and 78% matters. If your home has appreciated, requesting cancellation at 80% with a new appraisal showing the higher value can remove PMI years earlier than waiting for the scheduled drop-off. It’s one of the most commonly missed savings opportunities in homeownership.
Starting with the 2026 tax year, private mortgage insurance premiums are treated as deductible mortgage interest under provisions of the One Big Beautiful Bill Act signed into law in 2025. The deduction, which had expired after 2021, is now permanent. To benefit, you’ll need to itemize deductions on your federal return rather than taking the standard deduction.
Conventional Loan vs. FHA Loan
The practical differences come down to mortgage insurance and qualification flexibility. FHA loans accept credit scores as low as 580 with 3.5% down, making them accessible to borrowers who can’t clear conventional standards. That accessibility has a cost: FHA mortgage insurance is harder to shed. If you put less than 10% down on an FHA loan, you pay mortgage insurance for the entire life of the loan. On a conventional loan, PMI drops off once you build 20% equity.
For borrowers with credit scores above 700 and at least 5% to put down, a conventional loan almost always costs less over time. The PMI is cancelable, and you avoid the FHA’s upfront mortgage insurance premium, currently 1.75% of the loan amount rolled into the balance. FHA tends to make more sense when your credit score is below 660 or when you’re stretching to qualify and need the more lenient DTI standards. Running the numbers on both options side by side before committing is worth the effort.