Conventional Loan Requirements 2026

Conventional loans require a minimum 620 FICO score. However, the minimum is a floor, not an optimal point. At 620-640 FICO, Fannie Mae and Freddie Mac loan-level price adjustments (LLPAs) add significant cost. The LLPA for a 620 FICO borrower at 95% LTV is approximately 2.5-3.0% of the loan amount in additional fee, which can be converted to a higher interest rate. This rate impact often makes FHA cheaper at this credit tier even including FHA's MIP.

Rates are estimates based on Freddie Mac PMMS and MGIC rate cards, April 2026. Individual lender quotes will vary.

Standard conventional down payment is 5% for primary residences. The 20% threshold eliminates PMI entirely. Between 5% and 20%, PMI is required. Key thresholds:

• 3% down: Available via HomeReady or Home Possible only. Income cap applies (80% AMI).
• 5% down: Standard minimum for conventional without income caps. PMI required.
• 10% down: Lower LTV typically improves PMI rates and conventional loan pricing.
• 20% down: No PMI. No upfront premium. Best long-term payment.
• 25%+ down: Maximum seller concession of 9% of purchase price.

Gift funds are permitted for conventional with documentation: a signed gift letter, evidence of donor funds, and evidence of transfer. Unlike FHA, conventional allows gifts from non-family sources in some cases. Investment properties typically require all funds from the borrower's own assets.

Two 3%-down conventional programmes exist. Both require the borrower to be income-qualified at or below 80% of Area Median Income (AMI) for the property location. For many borrowers in major metro areas, this is the key qualification hurdle.

HomeReady (Fannie Mae)

• 620 FICO minimum (same as standard conventional)
• Income at or below 80% AMI for the property census tract
• Reduced PMI rates: approximately 0.17% vs standard 0.55% at 97% LTV
• $500 homebuyer education course required (Framework or HUD-approved equivalent)
• Boarder income and rental income from accessory dwelling units can qualify
• Non-occupant co-borrowers permitted (more flexible than FHA)

Home Possible (Freddie Mac)

• 660 FICO minimum (slightly higher than HomeReady)
• Income at or below 80% AMI for the property census tract
• Similar reduced PMI rates to HomeReady
• Homebuyer education required for first-time buyers
• Home Possible Advantage product for super-conforming markets

2026 AMI Income Limits (80% AMI = HomeReady/Home Possible cap)

AMI limits are for a household of 4. Vary by household size. Verify current limits at Fannie Mae AMI lookup tool before application. Last updated 2026.

For a full comparison of 3% conventional vs 3.5% FHA, see our first-time buyer programmes page.

Conventional PMI is required when LTV exceeds 80% at origination. It is cancelled automatically when the loan balance reaches 78% of the original purchase price, regardless of current appraised value, per the Homeowners Protection Act (12 USC Section 4902). You can request manual cancellation at 80% LTV with a current appraisal showing the home is worth at least the original purchase price.

PMI types and their trade-offs:

• Monthly PMI: Most common. Paid each month as part of your mortgage payment. Cancellable. Easiest to understand.
• Single-Premium PMI: Paid in full at closing (e.g., 1.5-2.0% of loan amount). No monthly PMI cost. Does not cancel if you sell early. Best for borrowers planning long tenure.
• Lender-Paid PMI (LPMI): Lender absorbs the PMI cost but charges a higher interest rate. Not cancellable without refinancing. Best if you have low PMI risk (high FICO) and plan a short hold.

At 720+ FICO and 95% LTV, monthly PMI runs approximately 0.35% annually. On a $285,000 loan that is approximately $83/month at closing, declining as the balance amortises. PMI cancels at 78% LTV which, with 3% annual appreciation, occurs around month 96 (year 8). Total PMI paid: approximately $7,200 to $12,000 depending on cancellation timing.

Contrast this with FHA MIP on the same loan: 0.55% annual for 30 years = approximately $47,520. Conventional PMI on a 720+ FICO borrower saves $35,000-40,000 over the full loan term.

The FHFA published 2026 conforming loan limits on 26 November 2025. Limits apply to loans originated on or after 1 January 2026 and purchased by Fannie Mae or Freddie Mac. Loans above these limits are jumbo loans and require different underwriting: typically 10-20% down, 700+ FICO, and 6-12 months reserves.

Source: FHFA press release 26 November 2025. High-cost = counties where median home price exceeds 115% of baseline.

Conventional standard DTI is 45% back-end. Fannie DU and Freddie LPA can approve up to 50% back-end with compensating factors: 6+ months PITI reserves, high FICO (740+), large residual income, or minimal payment shock. Manual underwriting caps at 45% in most cases. See full DTI guide with handbook citations.