Conventional Loans, Explained

Three percent down is allowed on a conventional loan, and 20% down is not the minimum in Fannie Mae's rules. The 20% figure you have probably heard about is only the point where mortgage insurance stops being required. The 3% option does come with a few conditions, and I go through them below.

A conventional loan is a mortgage that follows the rules of Fannie Mae and Freddie Mac and is not insured or guaranteed by a government agency. For a client with solid credit it is very often the lowest-cost way to buy or refinance a home.

I'm Jeff Moran, NMLS #483943, a mortgage broker in Bluffton, South Carolina, originating since 1996. The rules on this page come from the Fannie Mae Selling Guide and its Eligibility Matrix (effective August 5, 2026), and each section below links the exact source it uses.

Conventional, conforming and jumbo

"Conventional" means there is no FHA, VA or USDA behind the loan. "Conforming" means the loan also fits the size limit and the purchase rules of Fannie Mae and Freddie Mac, the two companies that buy these mortgages from lenders. This page is about conforming loans. A conventional loan that is too large to conform is a jumbo, and Jumbo Loans covers that one on its own.

Since the same two rulebooks govern the loan no matter which lender writes it, I can price it across my lenders on the same day and show you the results side by side. Loan Programs at a Glance lays the whole menu of programs out next to each other, and Which mortgage fits you puts them in one comparison table.

Down payment on a conventional loan

Your down payment depends on how you will use the home. Fannie Mae's Eligibility Matrix sets a maximum loan-to-value ratio for each use, which is the loan amount as a share of the home's value, and your down payment is whatever is left over. If your loan runs through Desktop Underwriter, the automated system lenders use to check a file against Fannie Mae's rules, you can put down as little as:

• A home you will live in, one unit: 3% on a fixed-rate loan (97% loan-to-value) or 5% on an adjustable rate (95%).
• A home you will live in, two to four units: 5% (95% loan-to-value).
• A second home, one unit: 10% on a purchase (90% loan-to-value).
• An investment property: 15% on a one-unit purchase (85% loan-to-value) and 25% on a two-to-four-unit purchase (75%).

If you are going for the 3% option, we will need a few things to line up, and Fannie Mae's guide spells them out. Your loan has to be fixed-rate with a term up to 30 years, on a one-unit home you occupy. At least one person on the loan has to be a first-time homebuyer, which the guide defines as someone who has not had an ownership interest in a property in the last three years. The loan cannot be high-balance, which I explain under the loan limits below, and it has to come back approved through Fannie Mae's automated system. HomeReady, a separate Fannie Mae program, has its own rules for 3% down.

Credit score for a conventional loan

There are two ways your loan can get reviewed, and your score is used differently in each.

If Desktop Underwriter approves your loan, the Selling Guide does not require a minimum credit score. Your score still matters to what you pay, because Fannie Mae adds fees to the price of a loan based on the credit score, so a stronger score gets you a better price.

If your file is underwritten manually instead, meaning a person at the lender reviews it rather than the system, you will need at least a 620 for a fixed rate or a 640 for an adjustable rate. From there the Eligibility Matrix raises the floor depending on your loan-to-value ratio, your debt-to-income ratio and your reserves, which is the cash you have left after closing. Your debt-to-income ratio compares your monthly debts, including the new housing payment, to your stable monthly income. As an example, if you are buying a one-unit home you will live in with 5% down and your debt-to-income ratio is at or under 36%, a 680 score works with no months of reserves.

If your score is lower than you would like, we will want time to look at it, and strengthening your credit and why your free score is not your mortgage score are both worth a read before we talk.

If you are buying a second home or an investment property, the loan has to run through Desktop Underwriter and come back approved by it, according to the guide's occupancy section. You will also pay an extra fee in the price on every investment property loan, and on certain second-home loans.

Debt-to-income ratio on a conventional loan

Your debt-to-income ratio can go higher on one review path than the other. If a person is underwriting your file manually, the Selling Guide caps it at 36%, and it can go up to 45% when your credit score and reserves meet what the Eligibility Matrix asks for. If Desktop Underwriter approves your loan, the cap is 50%. Debt-to-income explained walks through how each of your debts gets counted, and we can go through yours together before you make an offer.

Mortgage insurance on a conventional loan

If you put less than 20% down, your loan will need mortgage insurance, because Freddie Mac's guide requires it on every conventional loan it buys with a loan-to-value ratio above 80%. At 20% down or more, it is not required.

Unless your lender is paying for it, it does not stay on your loan forever, and the Consumer Financial Protection Bureau lays out the rules for when it ends:

• You can ask to have it removed once your balance is scheduled to reach 80% of the home's original value. Your servicer, the company you send your mortgage payment to, will need your request in writing and a good payment history. It will also need a statement that there is no second mortgage on the home, and evidence that the home has not dropped below its original value.
• It ends on its own when your balance is scheduled to reach 78% of the original value, as long as you are current on the loan.
• It ends at the midpoint of your term even if the balance is not there yet, which on a 30-year loan is the month after year 15, as long as you are current.

Fannie Mae and Freddie Mac can set their own rules on top of these, but the CFPB says those rules cannot be less favorable to you. FHA works differently: on an FHA loan the monthly premium can stay for the life of the loan depending on how the loan is set up, and FHA Loans lays the two side by side.

2026 conforming loan limits

There is a cap on how large your conforming loan can be, and it depends on the county your home is in. The Federal Housing Finance Agency oversees Fannie Mae and Freddie Mac, and it set the 2026 baseline for a one-unit home in most of the country at $832,750. It announced that figure on November 25, 2025. In the counties it names as high-cost, the ceiling is $1,249,125, and two-, three- and four-unit homes have higher limits. The address of the home you are buying decides which limit applies to you.

A loan above the baseline in a high-cost county is called high-balance, and a few extra rules come with it. Your loan has to be run through Desktop Underwriter, and you cannot use the 3% down option above. On a two-to-four-unit home, you will also need a lower loan-to-value ratio, under 85% for two units and under 75% for three or four, so you will be putting more down. Those rules come from Fannie Mae's Eligibility Matrix.

If the loan you need is above your county's limit, you are looking at a jumbo, where each lender writes its own rulebook, so comparing lenders matters even more there. When your loan is close to your county's limit, it can be worth pricing it both as a conforming loan and as a jumbo, and Conforming vs. Jumbo covers them.

Conventional vs. FHA

Conventional tends to be the better answer when your credit is strong, because the price responds to your score and the mortgage insurance can come off. FHA, on the other hand, tends to fit when a recent credit event or a thin credit file makes conventional pricing hard, or when its debt-to-income allowances are what make the file work. I can price both for you side by side so you can see the monthly payment each one produces and choose the option that works best for you.

If you already own your home and are weighing a second mortgage or a line of credit against a new first mortgage, home equity options walks through that comparison.

See your conventional options

Conventional loans are priced in the tool on the home page, so you can see your rate and payment for your own scenario whenever you're ready, before anything else. If you would like me to go through the file with you, you can get pre-approved. You are also welcome to call me at 843-765-0000 just to talk it through, with no application needed first.

Common questions

How much do you need to put down on a conventional loan?

It depends on the home and how you will use it. Fannie Mae's Eligibility Matrix allows as little as 3% down on a fixed-rate loan for a one-unit home you will live in, when at least one person on the loan is a first-time homebuyer. Otherwise a home you live in generally takes 5%, a second home 10%, and an investment property more than that.

Is there a minimum credit score for a conventional loan?

Not for a loan approved through Desktop Underwriter, according to the Selling Guide, though your score still affects the price. A manually underwritten fixed-rate loan has a floor of 620.

Do you have to pay mortgage insurance on a conventional loan?

Only when the loan-to-value ratio is above 80%, because Freddie Mac requires it there. Under the rules the Consumer Financial Protection Bureau describes, you can ask to have it removed at 80% of the original value, and it ends on its own at 78%.

What is the difference between conventional and conforming?

Conventional means the loan has no government insurance or guarantee behind it. Conforming means it also fits the size limit and the rules of Fannie Mae and Freddie Mac.

Nothing here is a loan approval, a denial, or a commitment to lend. Guidelines change, and every file is reviewed on its own facts. Your rate, payment and eligibility depend on your complete application.