Conventional Loans: Everything You Need to Know in 2026

Conventional loans account for the majority of home purchases in the United States. They are flexible, widely available, and — for buyers with good credit and a reasonable down payment — often the best financing option available.

Here is everything you need to know about conventional loans in 2026.

What Is a Conventional Loan?

A conventional loan is a mortgage that is not backed by a government agency (unlike FHA, VA, or USDA loans). Conventional loans are offered by private lenders — banks, credit unions, and mortgage companies — and typically sold to Fannie Mae or Freddie Mac on the secondary market.

Because they are not government-backed, conventional loans have stricter qualification requirements than FHA or USDA loans. But for buyers who qualify, they offer significant advantages — particularly the ability to remove mortgage insurance once you build equity.

Conforming vs. Non-Conforming (Jumbo) Loans

The most important distinction in conventional lending is whether your loan is conforming or non-conforming.

Conforming Loans

A conforming loan meets the guidelines set by Fannie Mae and Freddie Mac — including loan limits. For 2026:

•Standard conforming limit: $766,550 for a single-family home in most areas
•High-cost area limit: Up to $1,149,825 in designated high-cost counties

Pennsylvania: Most Pittsburgh-area purchases fall within the standard conforming limit. Allegheny County is not a designated high-cost area. Florida: Most Florida counties use the standard limit. Some high-cost counties (Monroe County/Florida Keys, some South Florida counties) have higher limits.

Conforming loans have the most competitive rates and the most lender options.

Non-Conforming (Jumbo) Loans

Loans above the conforming limit are called jumbo loans. They are:

•Held by the lender rather than sold to Fannie/Freddie
•Subject to stricter qualification requirements
•Often priced slightly higher than conforming loans (though not always)
•Relevant for buyers in high-cost markets: Naples, Sarasota, Fox Chapel, Upper St. Clair luxury tier

Jumbo loan requirements typically include:

•720+ credit score (often 740+)
•10–20% down payment minimum
•Significant cash reserves (12+ months of mortgage payments)
•Lower DTI ratios than conforming loans

Conventional Loan Requirements in 2026

Credit Score

•620: Minimum for most conventional loans
•680: Better rates and terms
•720: Very good rates
•740+: Best available rates

The credit score impact on conventional loan rates is significant. The difference between a 680 and a 760 credit score can be 0.5–0.75% in rate — which translates to $100–$150 per month on a $400,000 loan.

Down Payment Options

3% down: Available for first-time buyers through Fannie Mae's HomeReady and Freddie Mac's Home Possible programs. Requires income at or below 80% of area median income in most cases. 5% down: Standard minimum for most conventional loans for repeat buyers. 10% down: Reduces PMI costs significantly. 20% down: Eliminates PMI entirely. The traditional benchmark.

Debt-to-Income Ratio

•Standard maximum: 45% back-end DTI
•With strong compensating factors (high credit score, significant reserves): up to 50%

Employment and Income

•Two years of employment history preferred
•W-2 employees: straightforward documentation
•Self-employed: two years of tax returns, income averaged (and often discounted)
•Commission income: typically averaged over two years

Private Mortgage Insurance (PMI): The Full Picture

PMI is required on conventional loans when the down payment is less than 20%. Here is what you need to know:

PMI Costs

PMI typically costs 0.5–1.5% of the loan amount per year, depending on:

•Credit score (higher score = lower PMI)
•Loan-to-value ratio (lower LTV = lower PMI)
•Loan type and term

On a $400,000 loan with 10% down and a 740 credit score, PMI might cost approximately $100–$150 per month.

PMI Removal — The Key Advantage Over FHA

Unlike FHA MIP, conventional PMI can be removed:

Automatic cancellation: Lenders must automatically cancel PMI when your loan balance reaches 78% of the original purchase price (based on your payment schedule). Requested cancellation: You can request PMI removal when your loan balance reaches 80% of the original purchase price. You may need to demonstrate that the value has not declined. Appraisal-based removal: If your home has appreciated, you can request PMI removal based on a new appraisal showing 80% LTV. This is particularly powerful in appreciating markets like the Pittsburgh suburbs and Southwest Florida.

PMI vs. FHA MIP: The Math

On a $350,000 purchase with 5% down:

Conventional PMI (740 credit score):

•Monthly PMI: approximately $120
•PMI removed at 20% equity (approximately 7–10 years in an appreciating market)
•Total PMI paid: approximately $10,000–$14,000

FHA MIP:

•Upfront MIP: $5,863 (1.75%)
•Monthly MIP: approximately $160
•MIP lasts for life of loan (unless refinanced)
•Total MIP over 30 years: approximately $63,500+

For buyers with 680+ credit scores, conventional financing is almost always more cost-effective than FHA over the life of the loan.

Conventional Loan Programs Worth Knowing

Fannie Mae HomeReady

•3% down payment
•Income limit: 80% of area median income
•Reduced PMI rates
•Allows non-borrower household income to be considered
•Homebuyer education required

Freddie Mac Home Possible

•3% down payment
•Income limit: 80% of area median income
•Reduced PMI rates
•Flexible down payment sources

Conventional 97

•3% down payment
•Available to first-time buyers (no income limits)
•Standard PMI rates

HomeOne

•3% down payment
•No income limits
•First-time buyer requirement
•Homebuyer education required

Rate Factors: What Determines Your Conventional Rate

Conventional loan rates are risk-based — meaning your specific rate depends on your risk profile. Key factors:

Credit score: The single biggest rate driver. A 760 score gets dramatically better rates than a 680. Loan-to-value ratio: Lower LTV (larger down payment) = lower rate. Loan purpose: Purchase rates are typically better than refinance rates. Property type: Single-family homes get the best rates. Condos, multi-units, and investment properties carry rate adjustments. Loan term: 15-year rates are typically 0.5–0.75% lower than 30-year rates. Points: You can pay upfront points to buy down your rate. One point = 1% of the loan amount. Calculate the break-even period to determine if it makes sense.

Conventional Loans in Pennsylvania and Florida

Pennsylvania: Conventional loans are the dominant product in the Pittsburgh metro. The conforming limit accommodates most purchases. Strong credit and a reasonable down payment make conventional financing the best choice for most PA buyers. Florida: Conventional loans work well throughout Florida. In higher-cost markets (Naples, Sarasota, Miami), jumbo loans may be necessary for larger purchases. The buyer-friendly market conditions in Florida right now mean sellers are often willing to contribute to closing costs — which can offset the down payment requirement.

Questions about conventional financing or comparing loan options for your Pennsylvania or Florida purchase? I work with trusted lenders in both states and can help you find the right product for your situation. Call me at 724-931-1803 (PA) or 239-414-8435 (FL), or reach out through the contact form.