# Conventional loan requirements: what it takes, and when it beats FHA

Source: https://nobullshitloans.com/loans/conventional/
By Tyler Rood, Loan Officer, NMLS ID # 2064776, Edge Home Finance, LLC (NMLS ID # 891464). Updated 2026-11-09.

## The short answer

As of November 2026, a conventional loan usually needs Fannie Mae's or Freddie Mac's automated approval, not a set credit score, though many lenders require 620. Fixed-rate loans start at 3% down if you fit a 3% option, such as HomeReady for incomes at or under 80% of the area median. Under 20% down you pay PMI, which you can cancel at 80% of the original value, and the 2026 one-unit conforming limit in the Richmond area is $832,750.

Conventional is what most people mean by a normal mortgage: no government insurance, priced on your credit, and the loan I start with for most buyers with solid scores. Here are the conventional loan requirements as of November 2026, the numbers behind each one, and the places where FHA or another loan does the job better.

## Conventional loan requirements at a glance


**Conventional loan requirements, 2026**

- Credit score, automated approval: No set minimum (from Fannie Mae or Freddie Mac when their automated system approves the loan; many lenders set their own floor, often 620)
- Credit score, underwritten by hand: 620 or 640 (on Fannie Mae loans: 620 for a fixed rate, 640 for an adjustable rate)
- Down payment: From 3% (as little as 3% on a fixed-rate loan if you fit a 3% option; 5% on an adjustable rate or a 2 to 4 unit home you live in)
- Mortgage insurance (PMI): Under 20% down (cancel on request at 80% of the original value; ends on its own at 78%)
- Debt-to-income: Up to 50% (on a Fannie Mae loan its automated system approves; 36% to 45% if underwritten by hand; PMI costs more above 45%)
- Loan limit: $832,750 (for one unit; $1,066,250 for two, $1,288,800 for three and $1,601,750 for four)
- Seller credits: 3%, 6% or 9% (of the price depending on your down payment; 2% on an investment property)
- Occupancy: Any of three (the home you live in, a second home or an investment property)
- Property: Livable as is (and it has to appraise)


## Conventional loan requirements: credit score

As of November 2026, neither Fannie Mae nor Freddie Mac sets a minimum credit score for loans their automated systems approve. Fannie dropped its minimum for loan files created on or after November 16, 2025, and its system weighs the whole file instead. On Fannie Mae loans, files underwritten by hand still need 620 on a fixed rate and 640 on an adjustable rate.

That doesn't mean a 560 gets a conventional loan. Lenders add their own rules on top of the program's, called overlays, and a 620 floor is common. The bigger effect is price. Conventional charges more as your score drops in two places at once: the interest rate picks up pricing surcharges, and the PMI climbs. In my files, the score moves the price more often than it moves the answer, and below about 680 that price usually points to FHA.

## Conventional loan requirements: down payment

You don't need 20% down. That's a misconception. On a fixed-rate conventional loan you can get away with as little as 3% down plus closing costs, with no assistance program, if you fit one of the 3% options. Adjustable-rate loans and 2 to 4 unit homes you live in start at 5%.

**Worked example: Down payment on a $350,000 home**
- 20% down: $70,000
- minus 3% down: $10,500
- equals: Cash you keep by putting 3% down: $59,500
Note: At 3% you'll pay PMI, and the 3% options come with conditions.
_Hypothetical, rounded. Closing costs are extra either way._


That's about $60,000 of reasons to be okay with a PMI line. Waiting to save 20% can push a purchase back by years, and the cash you keep becomes your reserves.

Which 3% option fits depends on you:

- **HomeReady or Home Possible**, if your income is at or under 80% of the area median income for the address. On HomeReady, first-time and repeat buyers both qualify. More below.
- **The standard 3%-down conventional loan**, which on a Fannie Mae loan needs at least one first-time buyer; Freddie Mac's version is for first-time buyers too. First-time doesn't mean never owned: to Fannie Mae it means no ownership in any residential property in the last three years, so if you've owned before, ask before you rule yourself out.
- **Everyone else** starts at 5% in my files.

Who's on the loan matters too. Adding or dropping a co-borrower can change which 3% option you fit and how it prices, so I run the numbers with and without before anyone signs anything.

Cash to close is the down payment plus closing costs and prepaids. My rule of thumb at the 3% minimum is to plan for about double the down payment once everything is in. The full breakdown is on my [cash to close page](https://nobullshitloans.com/buy/cash-to-close/).

## HomeReady and Home Possible: the 3% programs with income limits

HomeReady (Fannie Mae) and Home Possible (Freddie Mac) are conventional loans built for moderate incomes. Both allow 3% down, and both cap income at 80% of the area median income (AMI) for the home's location. The 2026 AMI limits took effect June 13, 2026.

Why I check them first when income fits: the price. They require less mortgage insurance coverage above 90% loan-to-value than a standard conventional loan (on HomeReady, 25% instead of 30% to 35%), which usually means a cheaper premium. In my files the rate's better, it costs less, and the PMI costs less. The PMI is also cancellable, the same as any conventional PMI.

To check your income, look the address up in Fannie Mae's or Freddie Mac's income lookup tool and take 80% of the median it shows. If the median for the address is $140,000, the limit is $112,000 a year, about $9,333 a month. The underwriting findings confirm it, so it's not a judgment call.

One condition worth knowing: on HomeReady, if every buyer who will live in the home is a first-time buyer, at least one of you has to take a homeownership education course.

## PMI on a conventional loan: what it costs and when it comes off

Private mortgage insurance protects the lender, not you, and it's required any time your conventional loan is more than 80% of the home's value, which for most buyers means less than 20% down. Private mortgage insurance is not the devil. It's the price of buying sooner and keeping your cash.

The price is set for you, not for everyone. Four things move it: your credit score, your down payment, a debt-to-income ratio over 45% (that costs more) and the number of borrowers (two or more costs a little less). Here is what a typical mortgage insurer's published rate card works out to on a $350,000 home, before any of those adjustments.

| Credit score | 5% down ($332,500 loan) | 10% down ($315,000 loan) | 15% down ($297,500 loan) |
|---|---|---|---|
| 760 or higher | $105 a month | $74 a month | $47 a month |
| 740 to 759 | $147 | $100 | $50 |
| 720 to 739 | $183 | $121 | $57 |
| 700 to 719 | $216 | $144 | $62 |
| 680 to 699 | $266 | $171 | $69 |


**Chart: Monthly PMI on a $350,000 home, by score and down payment.** A good score cuts PMI by more than half at 5% down, and going from 5% to 10% down cuts it by about a third.

|  | 5% down | 10% down | 15% down |
|---|---|---|---|
| 760 or higher | $105 | $74 | $47 |
| 740 to 759 | $147 | $100 | $50 |
| 720 to 739 | $183 | $121 | $57 |
| 700 to 719 | $216 | $144 | $62 |
| 680 to 699 | $266 | $171 | $69 |

_Loans of $332,500 at 5% down, $315,000 at 10% and $297,500 at 15%, from a typical mortgage insurer's published rate card before any adjustments. Hypothetical, not a quote._


The card stops at 5% down, so expect a 3%-down premium to run higher than the first column. Your real number comes from a quote, and it can differ from the card. Two patterns stand out. A good score cuts PMI by more than half at 5% down, and going from 5% to 10% down cuts it by about a third.

You can ask your servicer to cancel PMI once your balance reaches 80% of the home's original value, and it ends on its own at 78%. If your home's value has gone up, there's often an earlier path through a new valuation, and the full rules are on my [mortgage insurance page](https://nobullshitloans.com/buy/mortgage-insurance/).

## How much can the seller pay on a conventional loan?

It depends on your down payment. On a home you'll live in or a second home, the seller (or anyone else with a stake in the sale) can pay up to 3% of the price when you put less than 10% down, 6% with 10% to under 25% down and 9% with 25% or more. On an investment property it's 2%, whatever you put down. The cap is measured on the lower of the price or the appraised value.

**Worked example: Seller credit cap on a $350,000 conventional purchase**
- 5% down: 3% cap: $10,500
- 10% down: 6% cap: $21,000
- 25% down: 9% cap: $31,500
Note: Measured on the lower of the price or the appraised value.
_Hypothetical primary residence, rounded._


Going from 5% to 10% down doubles how much help the seller can give you. That matters right now, because sellers in this market are paying closing costs and buydowns, and I'd rather see a credit than a price cut. How to structure that in an offer is on my [making an offer page](https://nobullshitloans.com/buy/making-an-offer/).

Match the contract to the cap before anyone signs. I've seen a contract ask for 4% on a loan capped at 3%, and about $3,000 of credit the buyer negotiated for simply couldn't be used. Anything over the cap gets treated as a price reduction instead. Program limits change, so check with me before writing a credit into an offer.

## The 2026 conventional loan limit in the Richmond area

The 2026 conforming loan limit for a one-unit home is $832,750, up $26,250 from 2025. Every locality in the Richmond metro area sits at that baseline; the higher-cost ceiling of $1,249,125 applies only in designated high-cost areas. Two to four units have higher limits: $1,066,250, $1,288,800 and $1,601,750.

A loan above the limit is a jumbo loan, with its own rules and pricing. Sometimes a second loan on top of a conforming first keeps you out of jumbo territory, and that's on my [jumbo loan page](https://nobullshitloans.com/loans/jumbo/). As of early November 2026, the 2027 limits had not been announced; they usually come out in late November.

## Conventional vs FHA: where the line falls

Below about 680, or with a high debt ratio, FHA usually costs less in my pricing; at about 720 and up, conventional usually wins, and in between I price both. The full side-by-side, with the math for one buyer at 680 and at 760, is on my [FHA vs conventional page](https://nobullshitloans.com/loans/fha-vs-conventional/).

## Second homes and rentals: the loan that does both

FHA and VA loans are for homes you live in. Conventional also finances second homes and investment properties, which makes it the first loan I look at for a lake house or a rental. In my files, a second home can go as low as 10% down, and an investment property usually needs 15% to 20%, with 20% avoiding PMI altogether.

What decides the category is what you'll actually do with the house. When I'm thinking of a second home, I'm thinking of a beach house or a lake house you use. If you'll rent it out most of the year, it's an investment property, and it gets financed as one even though that costs more. Mortgage fraud is real, and I don't want you to get in trouble.

My habit with rentals is a normal loan first. A conventional investment loan is cheaper and more familiar than the alternatives, and if we're trying to get a normal loan, it has to normally qualify. When the math doesn't work, because your debt-to-income can't carry another payment, a loan that qualifies on the property's rent is the fallback, at a higher rate. That's on my [DSCR loan page](https://nobullshitloans.com/loans/dscr/).

## Fixed or adjustable?

I lend fixed to nearly everyone, because I lend to middle-class America. An adjustable-rate mortgage tempts you with a low rate up front, but that rate holds only for a set period, often five years, and the lowest ARM rates often need points.

Before an ARM makes sense, it has to pass two tests:

1. **The exit.** Are you sure you'll be out of the house, or refinanced, before the fixed period ends?
2. **The cost.** How much are you paying in points for the lower start rate, and how many months to earn it back?

Credit matters here too. In my pricing, the ARM discount mostly disappears at lower scores, so it's worth a look at about 720 to 740 and up, or with a firm plan to move within about five years. An ARM also needs 5% down, not 3%.

If you buy conventional, the house has to appraise and be livable the day you close, the paperwork has to support every dollar, and the PMI goes away as you build equity. That's the deal, and with good credit it's usually the loan that costs you less.

## Frequently asked questions

### Is a 20-year mortgage a good idea?

It can be, but you can get most of the benefit without the commitment. On a $332,500 loan at an example rate of 6.5%, the 30-year payment is about $2,102 and the 20-year is about $2,479. Take the 30, pay $2,479 every month, and it's paid off in 20 years, with the right to drop back to $2,102 if life happens. I call that the insurance. The trade is that shorter terms usually price a little better, so ask for both quotes.

### Can I buy a second home and rent it out part of the year?

Yes, as long as it's a place you actually use, like a lake or beach house you might rent out some weeks. If the plan is to rent it most of the year, it's an investment property, and it has to be financed as one. Calling a rental a second home to save on the down payment is mortgage fraud, and I won't run it that way.

### Can I get cash back if the seller credit is bigger than my closing costs?

No. A seller credit can only pay real costs (closing costs, prepaids, points or a buydown), never the down payment, and none of it comes back to you as cash. If the credit is bigger than your costs, give it a job before closing, like buying down the rate, or the lender treats the extra as a price reduction.

### Should I compare HomeReady with Virginia Housing's programs?

Yes, if your income fits both. HomeReady and Home Possible lower the cost of a conventional loan, and Virginia Housing adds its own loans and down payment help with separate income and price limits. Here are the [Virginia first-time buyer programs](/virginia/first-time-buyer-programs/) I compare against.

### Are there extra conventional loan requirements for condos?

Yes. The building gets reviewed along with you, and some projects don't pass. Fannie Mae retired its short condo review (the limited review) for applications dated on or after August 3, 2026, so as of November 2026 a unit in a larger attached project on a Fannie Mae loan gets the full review, while a detached unit or a unit in a project of 10 or fewer units can often skip the project review. What the review looks at, and the options when a project fails, are on my [condo page](/loans/condo/).

## Sources

- [Fannie Mae Selling Guide B3-5.1-01, general requirements for credit scores](https://selling-guide.fanniemae.com/sel/b3-5.1-01/general-requirements-credit-scores)
- [Fannie Mae Selling Guide B3-6-02, debt-to-income ratios](https://selling-guide.fanniemae.com/sel/b3-6-02/debt-income-ratios)
- [Fannie Mae, HomeReady mortgage](https://singlefamily.fanniemae.com/originating-underwriting/mortgage-products/homeready-mortgage)
- [Fannie Mae Selling Guide B3-4.1-02, interested party contributions](https://selling-guide.fanniemae.com/sel/b3-4.1-02/interested-party-contributions-ipcs)
- [CFPB Compliance Bulletin 2015-03, private mortgage insurance cancellation and termination](https://files-prod.consumerfinance.gov/f/documents/201508_cfpb_compliance-bulletin_private-mortgage-insurance-cancellation-and-te_jpbfQUl.pdf)
- [FHFA, conforming loan limit values for 2026](https://www.fhfa.gov/news/news-release/fhfa-announces-conforming-loan-limit-values-for-2026)

## Disclosures

Individual Originator: Tyler Rood, Loan Officer, NMLS ID # 2064776 (www.nmlsconsumeraccess.org). Licensed in NC, PA, TX and VA.
Edge Home Finance, LLC | NMLS ID # 891464 | www.nmlsconsumeraccess.org. Licensed in all U.S. states & D.C., EXCEPT New York. Edge Home Finance, LLC is a mortgage broker, not a direct lender or creditor. Virginia Broker License MC-7006. North Carolina Mortgage Broker License B-201539. Pennsylvania Mortgage Broker License 81041. Texas: Mortgage Company License, Department of Savings and Mortgage Lending.
Numbers on this page are illustrations, not offers. Any rate shown on this site is an example. Rates may change or may not be available at the time of loan commitment or lock-in.
Edge Home Finance, LLC is a private mortgage broker and is not affiliated with, endorsed by, or acting on behalf of or at the direction of the U.S. Department of Veterans Affairs (VA), the Federal Housing Administration (FHA), the Department of Housing and Urban Development (HUD), or any other government agency.
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