A conventional loan is any mortgage that isn't insured or guaranteed by a government agency like FHA, VA or USDA. Most are "conforming" loans written to Fannie Mae or Freddie Mac rules, and for 2026 the baseline conforming limit for a one-unit home is $832,750 in most of the country. The requirements, including credit, down payment, reserves and mortgage insurance, come from the Fannie Mae or Freddie Mac guide and the automated underwriting findings for your file, not one fixed checklist. Our company doesn't add its own overlays on top of those rules.
Here's how conventional loans are underwritten, how down payment and mortgage insurance work, what sellers can contribute, and how to compare a conventional quote with FHA fairly.
"Conventional" tells you who stands behind the loan, and the answer is no government agency. If a borrower defaults, there's no FHA insurance claim and no VA or USDA guarantee. The lender, or the investor that buys the loan, carries the risk, often with help from private mortgage insurance.
All three are conventional, and all have to meet the federal ability-to-repay rule (12 CFR 1026.43).
Most conforming files run through Fannie Mae's Desktop Underwriter (DU) or Freddie Mac's Loan Product Advisor (LPA). I enter the application, pull credit, and the system returns findings: whether the file is eligible and exactly which documents the underwriter needs. A borrower with a long W-2 history and strong credit may get a short list. Variable income, a recent job change or thinner assets mean a longer one. If income, debts or assets change, the file is rerun and the findings can change.
The underwriter then verifies:
This changed recently. Fannie Mae removed its 620 minimum score for new DU casefiles created on or after Nov 16, 2025, so DU now relies on its own risk assessment. Manually underwritten Fannie loans still carry published minimums (Fannie Mae SEL-2025-09, Nov 5, 2025; B3-5.1-01). Even without a hard floor, your score still drives pricing and mortgage insurance cost, and some products and down payment assistance programs set their own minimums. Whether a particular lower-score approval can be delivered is something to ask me about for your file. More in how credit scores work for a mortgage.
There's no single conventional down payment. Fannie Mae's Eligibility Matrix sets maximum loan-to-value (LTV) by occupancy, number of units, loan purpose and product. A few published examples:
The down payment is an output of the file. Two buyers can both get a conventional loan with very different minimums.
When a conventional loan is above 80% LTV, Fannie Mae and Freddie Mac generally require credit enhancement, and private mortgage insurance is the usual form. It covers part of the lender's loss if the loan defaults. You usually pay it monthly, though single-premium and lender-paid versions exist.
The cost depends on LTV, credit score, the coverage required and other risk factors. That's one reason conventional and FHA quotes trade places depending on the borrower.
On most owner-occupied loans, the Homeowners Protection Act gives you cancellation rights. You can ask your servicer to cancel PMI when your balance is scheduled to reach, or actually reaches, 80% of the original value, if you're current and meet the servicer's conditions. It ends automatically when the balance is scheduled to reach 78% of the original value, provided you're current (CFPB; 12 U.S.C. 4902). Fannie and Freddie also allow removal based on current value after the loan has seasoned. FHA's mortgage insurance follows HUD's rules instead, and this path doesn't apply.
Fannie Mae caps "interested party contributions," money from the seller, builder or agent toward your costs. Caps are figured on the lower of the sales price or appraised value (B3-4.1-02, dated May 7, 2025):
Contributions can't fund the down payment or reserves, and they can't exceed your actual closing costs. Anything over the cap is treated as a sales concession and comes off the price. More in seller concessions.
A conventional appraisal is ordered through a process that keeps me away from the appraiser, under federal appraiser independence rules. The appraiser estimates market value and notes condition. Conventional guides care about safety, soundness and structural integrity, but the review is organized differently from FHA's minimum property requirements, and conventional files tend to accept more cosmetic, as-is condition.
On some files, DU or LPA offers to waive the appraisal and rely on data already on record. You can still choose to have one. Whether a waiver is offered depends on the file and property, and it changes as the models update.
Conventional and FHA are different rulebooks with costs in different places:
The fair comparison is two Loan Estimates with the same price, down payment and lock period, read in three places: sections A and B for lender and third-party charges, the projected payments table for mortgage insurance and escrow, and the comparisons section on page three for five-year costs. See how to read a Loan Estimate.
There's no rule that says one program is better, but some patterns show up again and again in my files:
And some patterns point the other way: lower scores, higher debt ratios, or a recent credit event may fit FHA's rules better. Reserves can also matter. DU and LPA findings may require them depending on the file, and second homes, rentals and multi-unit properties often see higher requirements. The honest answer comes from running both.
This example is made up to show how the rules apply.
Two friends ask me for "a conventional loan." Priya is buying her first home in Fort Worth to live in, and her income fits under the HomeReady limit for that area. Marcus is buying a duplex in Arlington as a rental. Both loans are conventional, but Marcus's file faces a lower maximum LTV, a 2% cap on seller contributions instead of 3% to 9%, and different reserve findings. Calling both "a conventional loan" without the details is how quotes go wrong.
The useful first step is running your file through a conventional option and any other program that might fit, then reading the Loan Estimates side by side. Book a call and I'll walk you through it, or when you're ready, start an application.
Links checked Oct 21, 2026.
About the author: McKade Lively, NMLS 2704474, American Pacific Mortgage Corporation dba True North Home Loans, NMLS 1850.
Equal Housing Opportunity.
Last reviewed: Oct 2026