Conventional Loan Requirements in 2026: Credit, Down Payment, Limits and PMI

Conventional loan requirements come mostly from two companies: Fannie Mae and Freddie Mac. In 2026, a typical conventional loan must stay at or under the conforming loan limit of $832,750 for a one-unit home in most counties. You also need a debt-to-income ratio that fits the rules (often up to 50%), at least 3% down on eligible loans, and private mortgage insurance (PMI) if you put down less than 20%.

A conventional loan is any mortgage that is not insured or guaranteed by a government agency such as FHA, VA or USDA. That sounds simple, but the rules have moved in the last year. Fannie Mae dropped its fixed 620 credit score floor for loans run through its automated system, and FHFA raised the loan limits again for 2026.

This guide walks through each requirement in plain language: loan limits, credit, debt, down payment programs, PMI, cash reserves, and what non-citizens should know. Lenders can add stricter rules of their own (called overlays), so treat these as the outer limits, not a promise of approval.

What is a conventional loan, and what makes it conforming?

A conventional loan is a mortgage made by a private lender without government insurance. It is “conforming” when it meets Fannie Mae or Freddie Mac rules, including the yearly loan limit set by the Federal Housing Finance Agency (FHFA). Loans that break those rules, most often by being too large, are “non-conforming.”

Most conventional loans are conforming because lenders like to sell them to Fannie Mae or Freddie Mac. That sale frees up cash so the lender can make more loans. The trade-off is that the lender must follow the companies’ guides closely.

Conforming vs non-conforming

A non-conforming loan is not automatically risky. A large jumbo loan to a borrower with strong income is non-conforming only because of its size. You can read more in our guide to jumbo loan requirements.

What is the conforming loan limit for 2026?

For 2026, the baseline conforming loan limit for a one-unit home is $832,750, up $26,250 from 2025. In high-cost counties, the limit can go as high as $1,249,125. These limits took effect January 1, 2026, according to FHFA’s announcement.

FHFA ties the baseline to home prices. Its house price index rose about 3.26% between the third quarters of 2024 and 2025, so the limit rose by the same percentage. High-cost counties get a limit based on local median home values, capped at 150% of the baseline.

Alaska, Hawaii, Guam and the US Virgin Islands have special rules. There, the one-unit baseline is $1,249,125 and the ceiling is $1,873,675. You can look up any county on FHFA’s conforming loan limit page.

What credit score do you need for a conventional loan?

For Fannie Mae loans run through its Desktop Underwriter (DU) system, there is no fixed minimum score as of November 16, 2025. DU weighs your whole credit profile instead. Manually underwritten Fannie Mae loans still need a 620 score for fixed rates and 640 for adjustable rates. Freddie Mac generally lists 620.

This is one of the biggest recent changes. Fannie Mae’s credit score topic in the Selling Guide now says DU casefiles have no minimum score. Lenders still must pull credit scores. And DU can still refer or decline a file with weak credit.

Freddie Mac’s product pages, such as its fixed-rate mortgage summary, list a minimum indicator score of 620 unless the Guide says otherwise. In practice, many lenders keep their own floor, often 620 or higher. A higher score usually means a lower rate and cheaper PMI.

If your score is low, compare both conventional and FHA options. Our FHA vs conventional loan comparison covers which tends to cost less at different score levels.

How much debt can you have? DTI rules explained

Fannie Mae allows a debt-to-income ratio (DTI) of up to 50% for loans run through DU. For manually underwritten loans, the limit is 36%, or up to 45% if you meet extra credit score and reserve rules. Freddie Mac’s limit for manually underwritten loans is 45%.

The 50% cap comes from Fannie Mae’s DTI topic. Reaching it usually needs strong credit, cash reserves or a larger down payment. A file with a high DTI and thin savings may not get an approval from DU.

Which 3% down conventional programs exist?

Three main options allow 3% down: Fannie Mae’s standard 97% loan-to-value option, Fannie Mae’s HomeReady and Freddie Mac’s Home Possible. All three need a fixed-rate loan on a one-unit home you will live in for the 97% level. HomeReady and Home Possible cap income at 80% of area median income.

Standard 97% option

Under Fannie Mae’s purchase transaction rules, loans from 95.01% to 97% loan-to-value need at least one first-time homebuyer. A first-time buyer here means someone who has not owned a home in the past three years. The loan must be fixed-rate, up to 30 years, on a one-unit primary home, and run through DU. High-balance loans and ARMs are not allowed at this level.

HomeReady

HomeReady limits total qualifying income to 80% of the area median income (AMI) for the property’s location. It allows 3% down on one-unit homes and can be used for one- to four-unit primary homes at lower loan-to-value levels. If every borrower living in the home is a first-time buyer, at least one must complete a homeownership education course.

Home Possible

Freddie Mac’s Home Possible also caps qualifying income at 80% of AMI. It allows up to 97% loan-to-value on one-unit homes. The down payment can come from family gifts, employer programs, secondary financing and even sweat equity. Freddie Mac updated its AMI figures in June 2026, so check the current limit for your address.

How does PMI work on a conventional loan?

Private mortgage insurance (PMI) is required when your down payment is less than 20%. It protects the lender, not you, if you stop paying. Unlike FHA mortgage insurance, PMI on a conventional loan can be removed once you build enough equity.

PMI is usually paid monthly as part of your house payment. Its price depends on your credit score, down payment, loan type and the coverage level the loan requires. A buyer with a high score and 10% down will usually pay less than a buyer with a lower score and 3% down.

Under the federal Homeowners Protection Act, as the CFPB explains, you can ask in writing to cancel PMI once your balance reaches 80% of the home’s original value. Your servicer must end it automatically when the balance is scheduled to hit 78%, as long as you are current. Our guide to mortgage insurance explained covers every type, including FHA, VA and USDA fees.

How much do you need in cash reserves?

Reserves are savings left over after closing, counted in months of house payments. For many one-unit primary home loans, Fannie Mae’s DU sets the requirement, and it may be low or none. Second homes, investment properties, two- to four-unit homes and buyers with several financed homes usually need more.

Reserves can include checking and savings, stocks and bonds, and often part of retirement accounts. Money you borrow, such as a cash advance, does not count. Even when DU asks for no reserves, having a cushion can help a borderline file get approved.

Manual underwriting is stricter. Fannie Mae’s Eligibility Matrix ties reserves to credit score, DTI and loan-to-value, so a manually underwritten loan with a 45% DTI will need more savings than one with a 36% DTI.

Can non-citizens get a conventional loan?

Yes. Fannie Mae’s Selling Guide says it buys loans to non-US citizens who are lawful permanent or non-permanent residents on the same terms as US citizens. The lender decides how to document legal presence and must stand behind that decision when it sells the loan.

Fannie Mae’s rule is in topic B2-2-02. It does not list specific documents, which is why one lender may ask for a green card and another for a visa plus a work permit. Freddie Mac’s Guide has its own section on non-citizen borrowers; ask your lender how it applies to your status.

The guide topic does not mention DACA recipients by name, and lender policies on DACA differ. This matters more now because government-backed options have narrowed. HUD’s Mortgagee Letter 2025-09 removed non-permanent residents from FHA eligibility for case numbers assigned on or after May 25, 2025. For a full breakdown by visa type, see our guide on the mortgage for immigrants.

How to apply for a conventional loan: step by step

Start by checking your credit and budget, then get pre-approved by more than one lender. Compare the official Loan Estimates line by line before you choose. The steps below follow the usual order for a home purchase.

1. Check your credit reports. Get free reports at AnnualCreditReport.com and dispute any errors.
2. Work out your budget and DTI. Add up monthly debts and compare them to gross income.
3. Decide on a down payment. Compare 3%, 5%, 10% and 20% down, including the PMI cost at each level.
4. Check program fit. See if your income qualifies for HomeReady or Home Possible, and whether you count as a first-time buyer.
5. Gather documents. Usually two years of W-2s or tax returns, recent pay stubs, two months of bank statements and ID.
6. Get pre-approved by two or three lenders. Ask each for a Loan Estimate on the same day so rates are comparable.
7. Lock your rate and complete underwriting. Respond fast to document requests to avoid delays.

Is a conventional loan right for you?

A conventional loan often fits buyers with fair-to-strong credit, steady documented income and at least 3% to 5% down. It is especially useful if you want PMI that can be cancelled, or if you are buying a second home or rental, which FHA does not allow.

It may not be the best fit if your credit score is low or your DTI is high, where FHA can be more forgiving. Veterans should compare a VA loan, and rural buyers should look at USDA. For a side-by-side view, see our guide to mortgage requirements by loan type.

Before you apply, gather your documents, check your score and talk to at least two lenders. Ask each one about its own overlays, since lender rules can be stricter than Fannie Mae and Freddie Mac.